U.S. futures rise after weaker-than-expected inflation data

Stock futures and U.S. government bonds rallied sharply on Wednesday after inflation data from the world’s largest economy came in lower than expected.

Consumer Price Index data released on Wednesday showed prices in the United States rose 8.5% on an annual basis in July, below the 8.7% rise expected by economists . Prices were flat month-over-month, below the expected 0.2% rise.

Futures that track the blue-chip S&P 500 gained 1.7% after the release, while those that track the tech-heavy Nasdaq 100 gained 2.5%.

In US government bond markets, the 10-year US Treasury bond yield, which moves in line with inflation and growth expectations, fell 0.1% to 2.7% . The yield on the two-year note, which moves with interest rate expectations, fell 0.2% to 3.1%.

In Europe, the Stoxx 600 gained 0.9% and the German Dax index gained 1% after losses in the previous session.

The release was “the only meaningful economic data of the week,” wrote Adam Cole, chief currency strategist at RBC Capital Markets, in a note Wednesday morning.

The stronger-than-expected data will allay investor concerns that the Federal Reserve will raise rates by 0.75 percentage points at its next policy meeting in September.

Core inflation hit 9.1% in June, its highest level in 40 years, prompting the US central bank to make consecutive interest rate hikes of 0.75 percentage points.

Market participants are split on whether the Fed will raise interest rates in September by 0.5 or 0.75 percentage points.

Core inflation, a measure of price growth that excludes volatile categories such as energy and food, also came in below expectations, remaining at the 5.9% level reached in June and well into below the peak of 6.5% reached in March.

It came after the broader Nasdaq Composite fell 1.2% on Tuesday as a warning from chipmaker Micron Technology about slowing consumer demand sparked fears for the sector’s outlook. and economic growth. The S&P 500 fell 0.4%, marking its fourth consecutive daily decline.

However, the S&P 500 has climbed 12% since mid-June, raising optimism among some investors.

“People ignore good news,” said Patrick Spencer, vice president of equities at Baird. “I think this could be a new bull market as opposed to a bear market rally. The Fed will eventually pivot, the pace of increases will have to slow . . . if inflation is lower than expected, the market will rally strongly.

Oil prices fell slightly on Wednesday, with international benchmark Brent shedding 1.8% to trade at $94.56 a barrel and U.S. marker West Texas Intermediate down 1.8% at $88.9.

Earlier on Wednesday, Asian indices were dragged lower by falling tech stocks, with Hong Kong’s Hang Seng index falling 2.5%. China’s benchmark CSI 300 index of stocks listed in Shanghai and Shenzhen fell 1.2%. Japan’s Topix closed down 0.2%.

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