US equity indexes experienced a mixed performance following midday trading on Wednesday, with investors closely analyzing the August inflation data. Technology emerged as the sole sector gain, despite the overall market showing uncertainty amid diminishing expectations of a significant interest-rate cut in the upcoming week. The S&P 500 index showed a slight decline of 0.1%, landing at 5,491.1.
Similarly, the Dow Jones Industrial Average decreased by 0.5%, reaching 40,528.2. Conversely, the Nasdaq Composite gained 0.7% to 17,141.7 after initially falling earlier in the session. While the technology sector held steady, all other sectors experienced intraday declines, with financials, energy, and consumer staples leading the losses. On the economic front, the consumer price index (CPI) rose 0.2% in August, maintaining the same rate as the previous month, according to the Bureau of Labor Statistics.
The headline figure was in alignment with a survey conducted by Bloomberg, showing a moderation in annual inflation from 2.9% in July to 2.5%, thus meeting Wall Street's projections. BMO Chief US Economist Scott Anderson noted, "Overall, this report indicates continued progress towards the Federal Reserve's inflation targets, with positive signs that inflation might further moderate due to declining energy prices, along with a potential easing in services and housing-related inflation." Additionally, core CPI showcased a month-over-month increase of 0.3% in August, up from a gain of 0.2% in the prior month and exceeding the consensus estimate of 0.2%.
Compared to a year prior, core CPI rose 3.2%, aligning with expectations and remaining consistent with levels from the previous year. The recent uptick in rents over consecutive months has contributed to an increase in 12-month rental inflation, which was noted for the first time since its peak at 8.1% in April 2023.
This development is significant in assessing the inflation landscape, as rental housing constitutes nearly 30% of the CPI. The Wells Fargo Investment Institute remarked that this trend "bears close scrutiny in determining future inflation trajectories." In the context of the Federal Reserve, a recent Scotiabank analysis stated, "US core inflation has shown a slight rise last month which ultimately diminishes the need for an oversized rate cut by the Fed.
There’s no justification for a substantial cut next week when adhering to a gradual approach seems more prudent." The likelihood of a 50 basis-point interest rate cut during the Fed's monetary policy meeting scheduled for September 18 dropped to 13% by Wednesday afternoon, a decline from the previous day's 34%.
Conversely, the probability of a 25 basis-point reduction rose notably from 66% to 87%. In the bond market, Treasury yields saw an increase, with the 10-year yield rising by 1.7 basis points to 3.66%, while the two-year rate was up by 3.5 basis points, reaching 3.64%. Prior to these movements, yields had been trading lower earlier in the trading day. In commodity markets, West Texas Intermediate crude oil prices surged by 3%, settling at $67.74 per barrel.
On the inventory front, US commercial crude oil stocks, excluding those in the Strategic Petroleum Reserve, witnessed an increase of 800,000 barrels during the week ending September 6. This rise followed a significant 6.9-million-barrel decrease in the previous week, notably lower than the projected gain of 1.1 million barrels surmised from Bloomberg’s survey. In corporate news, the Netherlands has mandated that ASML ($ASML) must secure export licenses to provide China with software updates for microchip production equipment that is not on the restricted list.
This news resulted in ASML’s shares climbing over 4%, positioning it among the top gainers on the Nasdaq. Furthermore, Jefferies has commenced coverage on The AES ($AES), assigning it a buy rating with a price target of $20. This rating contributed to AES’s shares surging by 7% intraday, classifying it as a standout performer on the S&P 500. Also noteworthy in the commodities front, gold traded slightly higher at $2,543.70 an ounce, while silver experienced a 1.1% increase, reaching $28.94..