Stocks advance to record on Fed rate-cut bets: Markets wrap

US Wall Street (Representational image)

Stocks rose to a record after an in-line US inflation reading bolstered speculation the Federal Reserve will have room to cut interest rates in September.

The MSCI All Country World Index rose 0.1% to an all-time high, tracking Wall Street’s surge to fresh peaks.

A gauge of Asian shares rose 0.7%, helped by a record for the Nikkei-225 index in Japan. Shanghai stocks jumped to their highest level since December 2021. The dollar was steady after falling in the prior session. Treasuries dipped with the yield on the 10-year inching up to 4.30%.

While underlying inflation accelerated to its fastest pace since the start of the year, a modest rise in goods prices eased concerns that trade-related costs could spill over into broader price pressures. With the CPI report now behind them, investors will turn their attention to Friday’s US retail sales data for signs that consumers are as upbeat as corporate earnings commentary suggested.

“Inflation is on the rise, but it didn’t increase as much as some people feared,” said Ellen Zentner at Morgan Stanley Wealth Management. “In the short term, markets will likely embrace these numbers because they should allow the Fed to focus on labor-market weakness and keep a September rate cut on the table.”

Treasuries edged down amid concern hasty Fed policy easing may drive up US inflation again. Money markets nearly priced in a full 25 basis point Fed reduction next month.

Japanese bonds declined ahead of a five-year note auction against the backdrop of renewed concerns over poor liquidity and volatility in the nation’s debt market.

The Fed has kept rates unchanged this year in hopes of gaining clarity on whether tariffs will lead to sustained inflation. At the same time, the labor market — the other half of their dual policy mandate — is showing signs of losing momentum.

“This inflation print supports the narrative of an insurance rate cut in September, which will be a key driving force for the markets,” said Alexandra Wilson-Elizondo at Goldman Sachs Asset Management. “With inflation contained and labor market softness increasingly evident in revised payroll data, the emphasis will now be skewed toward employment.”

In a social media post, President Donald Trump resumed his criticism of Jerome Powell over the central bank’s decision to hold rates steady.

Trump also said he is weighing a lawsuit against the Fed chief over the renovation of the central bank’s headquarters - a project whose cost overruns have drawn scrutiny.

In a social media post, President Donald Trump resumed his criticism of Jerome Powell over the central bank’s decision to hold rates steady.

Trump also said he is weighing a lawsuit against the Fed chief over the renovation of the central bank’s headquarters - a project whose cost overruns have drawn scrutiny.