San Francisco Frontiers - Stocks advance as US inflation data raises rate cut hopes

Eagerly awaited data showed the US consumer price index (CPI) rose 2.9 percent last month from a year ago, its smallest 12-month increase since March 2021 and a positive sign for the Federal Reserve as it weighs cutting interest rates.

On a monthly basis, prices rose by 0.2 percent, in line with expectations.

"Today's US inflation figure clears the runway for the Federal Reserve to initiate a rate cut at its September meeting," said Richard Carter, head of fixed interest research at investment management firm Quilter Cheviot.

"The last thing the Fed and the market will have wanted prior to the next meeting was any surprises in the data, and while some may still appear, inflation is at least playing ball and that is the most important data point to consider still," he added.

US Investment Analyst Bret Kenwell at eToro said: "It's no longer a question of 'if' or 'when' the Fed will cut rates, but rather, whether the Fed will cut by 25 or 50 basis points."

Monetary policymakers are tipped to cut US rates by 25 basis points at their September meeting -- with some observers eyeing as much as 50 -- followed by at least one more cut before December.

A weak US jobs report earlier this month, including a rise in the unemployment rate to 4.3 percent, caused worries that the Fed had waited too long to begin cutting interest rates and that the world's largest economy might fall into recession.

While subsequent data has calmed those fears, market expectations that the Fed will deliver bigger interest rate cuts have grown.

Weak inflation and jobs data "may give the Federal Reserve greater confidence to accelerate its pace of interest rate cuts," said Mahmoud Alkudsi, Senior Market Analyst at ADSS.

With the inflation data coming in as expected, Wall Street stocks wobbled after the start of trading, but the Dow and S&P pushed higher in late morning trading.

"The markets appear to have been positioned for an even softer figure after yesterday's PPI," noted market analyst Kyle Chapman at currency brokerage Ballinger Group.

Data on Tuesday showed US wholesale prices (PPI) rose less than forecast last month, and Wall Street stocks closed sharply higher.

On Wednesday, Tokyo extended gains and Europe's main indices closed solidly higher, as traders digested an expected pickup to Britain's Consumer Prices Index.

Oil prices fell further as it was confirmed Israeli officials will participate in Gaza truce negotiations in Doha on Thursday.

Tensions remain high in the Middle East on fears Iran will retaliate against Israel after top leaders of Hezbollah and Hamas were assassinated in Tehran and Beirut in late July.

Luca Santos at ACY Securities said ample supplies and hopes that a full-blown conflict can be avoided have seen oil prices slide.

But he warned that "any significant escalation could shake up oil supplies, leading to sharp price hikes and a return of risk-averse behaviour in the markets".

- Key figures around 1530 GMT -

New York - Dow: UP 0.4 percent at 39,915.17 points

New York - S&P 500: UP 0.2 percent at 5,447.15

New York - Nasdaq Composite: FLAT at 17,184.22

London - FTSE 100: UP 0.6 percent at 8,281.05 (close)

Paris - CAC 40: UP 0.8 percent at 7,333.36 (close)

Frankfurt - DAX: UP 0.4 percent at 17,885.60 (close)

EURO STOXX 50: UP 0.4 percent at 4,388.10 (close)

Tokyo - Nikkei 225: UP 0.6 percent at 36,442.43 (close)

Hong Kong - Hang Seng Index: DOWN 0.4 percent at 17,113.36 (close)

Shanghai - Composite: DOWN 0.6 percent at 2,850.65 (close)

Euro/dollar: UP at $1.1025 from $1.0998 on Tuesday

Pound/dollar: DOWN at $1.2841 from $1.2867

Dollar/yen: DOWN at 146.69 yen from 146.80 yen

Euro/pound: UP at 85.85 pence from 85.46 pence

West Texas Intermediate: DOWN 0.7 percent at $77.77 per barrel

Brent North Sea Crude: DOWN 0.3 percent at $80.50 per barrel

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M.Powell--SFF