Market Snapshot: U.S. stock futures waver after hotter-than-expected August inflation report

What’s driving markets

U.S. stock indexes were higher on Wednesday after the release of the U.S. consumer-price index for August, which showed annual headline inflation rose 3.7% last month, slightly higher than the Wall Street’s forecast of 3.6%.

The consumer-price index, which measures costs across a broad variety of goods and services, rose 0.6% for the month, its biggest monthly jump in 14 months. However, excluding volatile energy and food prices, the so-called core inflation rose by 0.3%, also a bigger rise than the 0.2% that had been expected.

See: CPI shows biggest increase in inflation in 14 months

“This latest U.S. CPI data is unlikely to move the needle on the Fed’s highly anticipated move to hold rates steady at their meeting next week – which has already been priced-in by financial markets.” said Nigel Green of  deVere Group, a financial advisor and asset management firm. “But the uptick in inflation gives the U.S. central bank extra reason to be hawkish moving forward,” he said. “As such, we also expect the Fed will start to prepare the market for a rate increase at its November meeting.”

Fed funds futures traders continued to see a 95% probability of no interest-rate hikes by the Federal Reserve at its policy meeting next week, while the chance of a 25-basis-point hike at its November meeting was seen at 37%, little changed from a day ago, according to the CME Fed Watch Tool. 

The yield on the 10-year Treasury note
BX:TMUBMUSD10Y
rose 1 basis point to 4.279%, while the policy-sensitive 2-year Treasury
BX:TMUBMUSD02Y
was off 3 basis point to 4.999%.

Chris Zaccarelli, chief investment officer at Independent Advisor Alliance said Wednesday’s report was a disappointment due to the 0.3% monthly jump for the core inflation rate. “This isn’t the goldilocks number that investors were hoping for, but markets can still trade in a range – as inflation is high enough to keep the Fed still in play, but not hot enough for a shift away from the ‘Fed is almost done’ narrative,” he said in emailed comments.

Zaccarelli also said the stock market can still rally into year-end as long as the economy remains resilient and inflation doesn’t “re-ignite,” once we get past the seasonally weak months of September and October.

MarketWatch Live Coverage: Stock Market Today: Dow nudges higher after CPI reading

Investors will also have an eye on the expected pricing later in the day of ARM Holding’s initial public offering, which may value the chip designer at up to $55 billion. A successful launch for the U.K-based company may spark the IPO market into life. A buoyant IPO scene is often a characteristic of a broadly bullish stock market.

See: Tech’s wild week: How Apple, Google, AI, Arm’s mega IPO could set the agenda for years

Other U.S. economic updates set for release on Wednesday include the federal budget report for August, due at 2 p.m.

Companies in focus

• Nio
  NIO,
  -2.98%
  and Li Auto
  LI,
  -0.86%
  shares declined by 3% and 0.8% on Wednesday, respectively, after the European Union said it’s probing Chinese government subsidies to electric vehicle makers.

• Apple shares
  AAPL,
  -0.47%
  slipped 0.3%. A Chinese government spokesperson denied there’s a ban in place on foreign phones but noted “security incidents” with the iPhone.

• Spirit Airlines Inc.’s stock 
  SAVE,
  -1.74%
  tumbled 1.4% on Wednesday after the discount carrier lowered its third-quarter guidance to reflect increased promotional activity for travel in the second half and aa recent spike in fuel prices.