US stocks bounce back, Treasury yields steady after CPI, debate

NEW YORK :Wall Street reversed an earlier sell-off to close higher on Wednesday, and Brent crude prices rebounded from 3-1/2 year lows as a key inflation report cemented expectations that the U.S. Federal Reserve will issue a 25-basis point rate cut next week.
Investors also parsed Tuesday night’s U.S. Presidential debate to gauge potential policy shifts after the November election.
All three major U.S. stock indexes pulled a U-turn, transforming a sell-off into a rally by mid-afternoon. Tech stocks, particularly chips, were clear outperformers, putting the Nasdaq ahead of the pack.
The Labor Department’s Consumer Price Index (CPI) showed the annual inflation rate CPI shed 0.4 per centage points to a cooler-than-expected 2.5 per cent. The core measure – which excludes food and energy – posted a hotter-than-expected monthly gain of 0.3 per cent, and an annual increase of 3.2 per cent.
“The inflation report kind of gave inflation bears a little something and it gave inflation bulls something,” said Chuck Carlson, chief executive officer at Horizon Investment Services in Hammond, Indiana.
“At least initially today, there was the feeling that a 50-basis-point rate cut isn’t going happen,” Carlson added. “Maybe now investors are starting to think that maybe that isn’t a bad thing.”
At last glance, financial markets have baked in an 85 per cent probability that the Fed will cut its key policy rate by 25 basis points at next week’s policy meeting, with a dwindling 15 per cent chance of a double-sized 50 bp cut, according to CME’s FedWatch Tool.
Market participants paid close attention to late Tuesday’s U.S. presidential debate, listening closely for potential policy clues from Vice President Kamala Harris and former President Donald Trump.
The presidential hopefuls butted heads over abortion, the economy, immigration and Trump’s legal woes at their rancorous first debate.
The Dow Jones Industrial Average rose 124.75 points, or 0.31 per cent, to 40,861.71, the S&P 500 gained 58.6 points, or 1.07 per cent, to 5,554.12 and the Nasdaq Composite added 369.65 points, or 2.17 per cent, to 17,395.53.
European stocks ended the session essentially flat as investors shifted their focus to the European Central Bank and its rate decision expected on Thursday.
The pan-European STOXX 600 index rose 0.01 per cent and MSCI’s gauge of stocks across the globe gained 0.62 per cent.
Emerging market stocks lost 0.37 per cent. MSCI’s broadest index of Asia-Pacific shares outside Japan closed 0.24 per cent lower, while Japan’s Nikkei lost 1.49 per cent.
Yields on 10-year U.S. Treasury notes steadied from an earlier slump in which the benchmark rate touched its lowest level since June 2, 2023.
Benchmark 10-year notes last fell 5/32 in price to yield 3.6609 per cent, from 3.644 per cent late on Tuesday.
The 30-year bond last fell 12/32 in price to yield 3.9743 per cent, from 3.954 per cent late on Tuesday.
The dollar was nominally higher against a basket of world currencies after inflation data appeared to lock in a smaller, 25 bp interest rate cut.
The dollar index rose 0.08 per cent, with the euro down 0.04 per cent to $1.1015.
The Japanese yen strengthened 0.04 per cent versus the greenback at 142.40 per dollar, while Sterling was last trading at $1.3042, down 0.28 per cent on the day.
Oil prices steadied after Tuesday’s sell-off as a drop in U.S. crude inventories and potential supply disruptions from Hurricane Francine balanced against concerns over softening global demand.
U.S. crude jumped 2.37 per cent to settle at $67.31 per barrel, while and Brent settled at $70.61 per barrel, up 2.05 per cent on the day.
Gold prices dipped as hopes dimmed for a larger interest rate cut from the Fed at next week’s policy meeting.
Spot gold dropped 0.2 per cent to $2,512.30 an ounce.