Dow ends on a good note as investors breathe sigh of relief from CPI figures

4:10pm:

Wall Street closed higher after positive news on consumer prices, which could influence upcoming interest-rate decisions.

At 4pm, the Dow Jones had risen by 0.6% at 40,008, the S&P 500 increased by 0.4% at 5,455 and the Nasdaq Composite edged just ahead of the flatline to close at 17,193.

2:45pm: What about PCE?

The overall trend of inflation is improving, according to Bank of America analysts. 

But it will take a look at the next PCE inflation print, due August 30, to get a full picture of that trend.

Analysts project that headline and core PCE inflation will rise slightly by 0.17% and 0.19% month-over-month, leading to year-over-year rates of 2.6% and 2.7%, respectively—both a 0.1 percentage point increase from June. They attribute this rise to base effects and do not see it as a sign of increasing inflation. Instead, they suggest focusing on the 3-month and 6-month annualized rates, which are expected to show improvement compared to earlier in the year.

Will the Fed see it in the same way? That's the key question, according to Bank of America. 

"At recent press conferences, Chair Powell has focused on year-on-year rates of inflation, which implies the Fed may prefer to ease gradually when it does ease," analysts commented Wednesday. 

"That said, like the details of the CPI report, we think the upcoming PCE inflation data should increase the Fed's confidence in the outlook for inflation to ease policy in September."

12:45pm: Rate cuts eyed

US stocks were mixed in the early afternoon as an as-expected inflation reading for July has paved the way for the Federal Reserve to start cutting interest rates as soon as its upcoming September meeting. 

“After surprising to the upside earlier this year, recent inflation prints suggest disinflation is back on track, helping to pave the way for Fed rate cuts later this year,” Bank of America analysts wrote.

The Dow Jones added 0.4% at 39,918 points, the S&P 500 was flat at 5,436 points, while the Nasdaq slipped 0.4% at 17,115 points.

Google’s Alphabet traded down 3% on reports the Department of Justice is considering a breakup of the tech giant following a court ruling that it has illegally monopolized online search.

The news that Mars is acquiring Kellanova (NYSE:K) sent shares of the Pringles parent almost 8% higher at $80.

11:00am: Sigh of relief

Investors are breathing a sigh of relief after the CPI print failed to provoke much volatility in the markets, according to Chris Beauchamp, Chief Market Analyst at online trading platform IG.

“The key event of the week is out of the way, but after their leap higher over the past week stocks look a little exhausted," Beauchamp commented.

"US inflation still seems to be moving in the right direction, and investors seem happy to shrug off the monthly rise given that the annual figure declined. But there is a sense of ‘where do we go from here?’ now. Having recouped so much of their recent losses so quickly, equities are now bereft of a catalyst in the short-term.”

9:50am: Stocks mixed at open

Stocks opened mixed following Wednesday’s opening bell, after data showed inflation subsided in July, but most importantly avoided any surprises.

The Dow Jones notched up 66 points, while the Nasdaq dipped 30 points and S&P 500 traded flat in another calmer start after sell-offs last week.

Analysts noted the inflation figures supported expectations for the Federal Reserve to cut base interest next month, with both 25 and 50 basis point reductions still on the table.

“Markets had been fretting that the US central bank was behind the curve with interest rate cuts and a sharp slowdown or recession was likely as a result,” Charles Stanley (LSE:CAY) analyst Garry White said. 

“We think these concerns were over-exaggerated and a soft landing is still in prospect for the world’s largest economy.”

Among companies, Pringles maker Kellenova jumped over 7% early on after confirmation came of a US$30 billion takeover by confectionary firm Mars.

Biotechnology firm Illumina Inc (NASDAQ:ILMN, ETR:ILU) also gained, climbing over 5%, after telling investors of a partnership with Broad Institute to work on new gene sequencing kits.

9:18am: Fed now has ‘maximum flexibility’ on September rate cut

Analysts believe a September rate cut by the Federal Reserve is all but set in stone after inflation slowed in July, with questions now rather around how much interest will be reduced by.

Discussing the data, which showed inflation slowed to 2.9%, TD Securities’ Gennadiy Goldberg said “it really ticks the box for a September rate cut”.

“It gives the Fed maximum flexibility,” he said, adding “the big question they have to decide is whether they should cut [by] 25 or 50” basis points.

Capital Economics’ Paul Paul Ashworth noted a 25 basis point cut was most likely, given the data did not “suggest price pressures are collapsing in a way that could warrant a bigger [...] reduction”.

That said, Quilter Cheviot research head Richard Carter reassured that “investors should be calmed knowing that rate cuts are coming,” after a weak US jobs report earlier in the month prompted a global sell-off.

Futures showed the Dow Jones, Nasdaq and S&P 500 all moving into positive territory as Wednesday’s opening bell approached.

8:52am: Subsiding inflation solidifies need for rate cut - analyst

A dip in inflation over the course of July is a “clear” signal for the Federal Reserve to now begin cutting interest rates, Charles Schwab director Richard Flynn says.

After Bureau of Labour Statistics data showed consumer prices climbed at their slowest rate in over three years by 2.9% in July, Flynn commented “it’s time for interest rates to fall”.

“While investors have begun to price in a rate cut at the September meeting, we have seen dramatic moves in the market this month - volatility that reflects residual uncertainty about the outlook for the market. 

“Although today’s lower consumer price index reading is another convincing piece of evidence in favour of less restrictive monetary policy, we expect that the market will remain highly sensitive to economic data releases until a September slash is locked in.”

Futures had the Dow Jones remaining in the red ahead of Wednesday’s open, while the Nasdaq and S&P 500 looked to rise slightly.

8:41am: Inflation climbs at slowest rate in over three years

Inflation ticked up 2.9% in the United States over the year to July, just shy of expectations for a 3.0% increase.

On a monthly basis, consumer prices rose by 0.2%, following a 0.1% decline in June, Bureau of Labour Statistics data showed on Wednesday.

The headline 2.9% figure marked the slowest rate of inflation since March 2021, while core data excluding volatile food and energy prices showed an increase of 3.2%.

Futures had the Dow Jones, Nasdaq and S&P 500 all in the red immediately after the figures were released.

7:46am: Stocks seen lower

Futures had the Dow Jones, Nasdaq and S&P 500 just off the mark ahead of Wednesday’s open, as investors await a key set of inflation data.

The Dow Jones was off 11 points before the bell, while the Nasdaq and S&P 500 were called down 11 and 3 points respectively.

This was as investors appeared to avoid any major movements ahead of US consumer price index figures, due on Wednesday morning.

Expectations are for headline inflation to have climbed 3% in July, with the figures set to offer clarity on how quickly the Federal Reserve could move in cutting interest rates over the coming months.

“While still significantly above the Fed’s 2% target, investors are likely to be relaxed if inflation steadies around here,” Trade Nation analyst David Morrison commented.

“Considering past performance, they should be even happier if headline [inflation] breaks below the 3% figure.”

He added a reading outside of market expectations could cause a “spike in volatility,” though expectations for a September rate cut will likely remain unchanged.