U.S. consumer prices rose 0.4% in August, matching forecasts, and traders pushed up bets on a Federal Reserve rate hike next week. The S&P 500 and Nasdaq rallied on the report while Treasury yields stayed near multi-year highs as oil prices retreated from a four-month peak.
The Consumer Price Index rose 0.4% in August after a 0.1% gain in July, in line with economist forecasts. Annual inflation held at 3.4%, the same pace as the prior month. Stocks rose on the reading, with traders reasoning that an in-line print removes uncertainty ahead of next week's Fed decision.
S&P 500 and Nasdaq extend gains
The Nasdaq and the S&P 500 climbed 0.8% after the CPI release matched expectations. Futures on both indices had already been pointing higher before the data, as S&P 500 and Nasdaq futures rose about 0.7% alongside a pullback in oil prices.
Core inflation ticks higher
Excluding food and energy, core CPI rose 0.3% in August, above the 0.2% consensus, while the annual core rate eased slightly to 2.4% from 2.5% in July. Traders responded by raising odds of a Fed rate hike to 82% for next week's meeting, up from 68% before the report. Bond markets reflected the same shift: the two-year Treasury yield rose 4.4 basis points to 4.594%, while the 10-year yield eased back to 4.92% after touching 4.98% earlier, its highest level in three years.
Oil retreat eases pressure
Brent crude, which had hit a four-month high of $109.97 a barrel after a 6% jump the previous day, pulled back about 3% to $104.28, still on track for a weekly gain of more than 8%. According to Reuters: "Markets are pricing in a scenario of higher rates for longer", said Gustav Helgesson, macro strategist at SEB. Analysts at JPMorgan expect eight of nine developed-market central banks to hike rates by year-end. That view lines up with the European Central Bank's rate increase on Thursday, its second this year.
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