Volkswacht Bodensee - US stocks rebound as market eyes Fed rate cut after inflation data

Wall Street indices initially fell following monthly consumer price index data, which kept the Federal Reserve on track to cut interest rates but weakened the case for a larger reduction.

The CPI rose 2.5 percent in August from a year ago, down from a 2.9 percent increase in July. It was the lowest annual figure since February 2021.

However, a measure of inflation that strips out volatile food and energy costs rose by a larger-than-expected 0.3 percent from a month earlier.

While investors widely expect the Federal Reserve to cut interest rates later this month, markets have been unsure of how big the cut will be.

Following Wednesday's inflation data, futures markets showed a jump in expectations for a smaller 0.25 percent cut instead of a half-point cut.

As the day progressed, investors realized the initial sell-off was an overreaction to the CPI data and that a Fed rate cut will still be positive for the stock market, said Art Hogan, chief market strategist at B. Riley Wealth.

All three major indices ended higher, led by the Nasdaq, which gained 2.2 percent.

Semiconductor companies -- which have been under pressure in recent weeks -- led Wednesday's gains, with artificial intelligence star Nvidia rising more than eight percent and Micron and Intel also notching big gains.

But XTB brokerage research director Kathleen Brooks said Wednesday's US inflation data "complicates the outlook for rate cuts further in the future".

While the data supports the Fed beginning to cut interest rates, "does it justify the 10 rate cuts that are currently priced in by the Fed Funds market over the next nine months?"

Oil prices recovered in part after a hammering on Tuesday, when Brent North Sea crude slid below $70 per barrel for the first time since December 2021 on concerns about the global outlook.

Analysts pointed to offshore platform production suspensions in the Gulf of Mexico due to Hurricane Francine.

Paris and Frankfurt stocks diverged ahead of an expected interest rate cut on Thursday, with Frankfurt boosted by a more than 16 percent surge in Commerzbank shares after Italian rival UniCredit announced it had acquired a nine percent stake.

The European Central Bank is expected to cut interest rates again this week as inflation drifts back down towards its two-percent target, but policymakers will likely stay tight-lipped on future moves.

Sentiment in London was dented by official data showing Britain's economy stalled in July.

Asia's main equity indices closed lower with a strong yen weighing on Tokyo's market, while Chinese stocks were knocked by concerns over China's struggling economy, analysts said.

- Key figures around 2050 GMT -

New York - Dow: UP 0.3 percent at 40,861.71 (close)

New York - S&P 500: UP 1.1 percent at 5,554.13 (close)

New York - Nasdaq Composite: UP 2.2 percent at 17,395.53 (close)

London - FTSE 100: DOWN 0.2 percent at 8,193.94 (close)

Paris - CAC 40: DOWN 0.1 percent at 7,396.83 (close)

Frankfurt - DAX: UP 0.4 percent at 18,330.27 (close)

Tokyo - Nikkei 225: DOWN 1.5 percent at 35,619.77 (close)

Hong Kong - Hang Seng Index: DOWN 0.7 percent at 17,108.71 (close)

Shanghai - Composite: DOWN 0.8 percent at 2,721.80 (close)

Dollar/yen: DOWN at 142.38 yen from 142.44 yen on Tuesday

Euro/dollar: DOWN at $1.1018 from $1.1020

Pound/dollar: DOWN at $1.3046 from $1.3080

Euro/pound: UP at 84.43 pence from 84.24 pence

Brent North Sea Crude: UP 2.1 percent at $70.61 per barrel

West Texas Intermediate: UP 2.4 percent at $67.31 per barrel

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T.Suter--VB