By Stephen Culp
Contents
Markets React to Mixed Inflation Data
NEW YORK (Reuters) – In a surprising turn of events on Wednesday, Wall Street stocks plummeted sharply while U.S. benchmark Treasury yields touched their lowest in over a year. This development came as a key inflation report revealed a mixed path for price growth, all but cementing a 25 basis point rate cut by the U.S. Federal Reserve next week.
Stock Market Movements
The three main U.S. stock indexes veered decisively lower early in the trading session. The Dow Jones Industrial Average fell by 685.45 points, or 1.68%, to 40,051.51. The S&P 500 lost 81.74 points, or 1.49%, to close at 5,413.78. Similarly, the Nasdaq Composite dropped 193.18 points, or 1.13%, to 16,832.71.
European stocks also reversed earlier tech-driven gains when uneven Consumer Price Index (CPI) data from the U.S. impacted global markets. The pan-European STOXX 600 index shed 0.29%, while MSCI’s index of global stocks dropped 1.14%.
Emerging market stocks dipped 0.55%, and MSCI’s broad Asia-Pacific shares index, excluding Japan, closed 0.44% lower. Concurrently, Japan’s Nikkei lost 1.49%. This global downturn reflected widespread concerns about the economic outlook.
Consumer Price Index Insights
The Labor Department’s Consumer Price Index (CPI) report showed that the annual inflation rate fell by 40 basis points to a cooler-than-expected 2.5%. However, the core measure, which excludes volatile food and energy costs, posted a sharper-than-expected monthly gain of 0.3% and an annual increase of 3.2%.
Peter Cardillo, chief market economist at Spartan Capital Securities in New York, remarked, “Headline inflation was actually low, especially year-over-year, and it’s headed in the right direction, approaching the Fed’s 2% target.” Still, Cardillo added, “The report confirms that core inflation remains in the pipeline. It probably seals a quarter percentage point rate cut from the Fed.”
Market Expectations and Federal Reserve’s Likely Move
Financial markets took note, with an 83% probability that the Federal Reserve would cut its key policy rate by 25 basis points at next week’s policy meeting, according to CME’s FedWatch Tool. Only a 17% chance remained for a more considerable 50 basis point cut.
Bond Yields and Currency Movements
Yields on 10-year U.S. Treasury notes initially spiked after the CPI report but reversed course following the stock indexes’ downward trend. Benchmark 10-year notes last rose 6/32 in price, yielding 3.6236%, down from 3.644% late on Tuesday. Similarly, the 30-year bond last rose 8/32 in price, yielding 3.9415%, down from 3.954% the previous day.
In the currency markets, the dollar edged higher against a basket of world currencies. The dollar index rose 0.09%. The euro fell 0.12% to $1.1006, and the Japanese yen strengthened 0.73% against the greenback, trading at 141.45 per dollar. Sterling was last at $1.3009, down 0.54% on the day.
Oil Prices and Commodities
Oil prices found stability after Tuesday’s sell-off. A reduction in U.S. crude inventories and potential supply disruptions from Hurricane Francine balanced concerns over softening global demand. U.S. crude edged up 0.21% to $65.89 per barrel, and Brent increased 0.48% to $69.52 per barrel.
Gold prices dipped as expectations for a larger interest rate cut from the Federal Reserve faded. Spot gold was down 0.4% at $2,505.61 an ounce.
Political Factors
Market participants closely monitored Tuesday night’s U.S. Presidential debate, paying particular attention to any policy clues from Vice President Kamala Harris and former President Donald Trump. During their contentious first debate, the candidates clashed over abortion, the economy, immigration, and Trump’s legal troubles.
(Reporting by Stephen Culp; Additional reporting by Lawrence White in London; Editing by Alexandra Hudson)
