Global Stocks Rally as U.S. Inflation Eases, Boosting Hopes for Fed Rate Cuts

Global stocks rose on Wednesday, while the U.S. dollar dipped slightly and Treasury yields fell after inflation data came in lower than expected, increasing hopes that the Federal Reserve may ease interest rates in the near future.

At the same time, geopolitical tensions added to market uncertainty. Oil prices were supported after Israel’s strike on Hamas leadership in Qatar, while gold remained near record highs. Poland also deployed additional NATO air defense systems following Russian airstrikes on western Ukraine.

Inflation Data Surprises to the Downside

The U.S. Labor Department’s Bureau of Labor Statistics reported that the Producer Price Index (PPI) for final demand declined by 0.1% in August, following a revised 0.7% rise in July.

Economists surveyed by Reuters had expected a 0.3% increase for August after July’s 0.9% growth. Service prices fell 0.2%, while goods prices rose just 0.1% after a 0.6% increase the previous month.

Carol Schleif, Chief Market Strategist at BMO Private Wealth in Minneapolis, said, “The PPI report was clearly welcomed by stocks and bonds alike. Inflation came in a bit lower than many had expected.”

She added, “This reinforces the view that the Fed may not only cut rates once next week but might be able to ease multiple times before year-end.”

According to the CME Group’s FedWatch tool, traders now see a near certainty that the Fed will cut rates by 25 basis points next Wednesday, with a 12% chance of a larger 50-basis-point cut. The tool also shows expectations for further cuts in October and December.

The last hurdle for these expectations will be consumer inflation data, scheduled for early Thursday.

Schleif noted that markets may pull back slightly by the end of the day as investors await the August Consumer Price Index release.

Fed Independence and Broader Concerns

Investors concerned about the Fed’s independence may have taken comfort from a court ruling temporarily blocking President Donald Trump from removing Fed Governor Lisa Cook—a case likely headed to the Supreme Court.

Meanwhile, Stephen Miran, a top White House economic adviser, cleared a key hurdle in the U.S. Senate on Wednesday, advancing his nomination as a Fed governor.

Stock Markets React

On Wall Street, the S&P 500 and Nasdaq hit record highs following the PPI release. At 10:49 a.m., the Dow Jones Industrial Average fell 185.96 points or 0.41% to 45,524.82, while the S&P 500 gained 34.68 points or 0.53% to 6,547.29, and the Nasdaq Composite rose 113.06 points or 0.52% to 21,992.55.

The MSCI All-Country World Index (.MIWD00000PUS) rose 0.50% to 966.53. Europe’s STOXX 600 edged up 0.01%, while Poland’s blue-chip WIG20 index fell nearly 1%, one of the few regional markets in the red.

Currency Markets

With inflation data reinforcing Fed rate-cut expectations, the U.S. dollar weakened slightly against the euro and yen. The dollar index, which measures the greenback against a basket of currencies, declined 0.2% to 97.61, while the euro gained 0.17% to $1.1728.

The dollar also slipped 0.06% against the Japanese yen to 147.32. Bitcoin climbed 2.23% to $113,983.39.

Treasury Yields and Energy Markets

Yields on major U.S. Treasuries fell after the data release. The 10-year yield dropped 2.1 basis points to 4.053%, and the 30-year yield declined 0.8 basis points to 4.7087%. The 2-year yield, closely watched for Fed signals, fell 1.3 basis points to 3.529%.

In energy markets, oil prices rose following Israel’s Hamas strike and U.S. sanctions on Russian oil buyers, although concerns about oversupply capped further gains. U.S. crude gained 0.73% to $63.09 per barrel, while Brent crude rose 0.71% to $66.86 per barrel.

Gold Near Record Highs

Gold prices advanced as expectations of lower interest rates gained traction. Spot gold rose 0.57% to $3,646.75 per ounce, while U.S. gold futures gained 0.29% to $3,653.90 per ounce.