Wall Street jumps, oil lower ahead of Fed vote next week

Wall Street Rallies, Oil Prices Drop as Markets Brace for Fed Interest Rate Vote

Market Movements and Economic Outlook

By Pete Schroeder

WASHINGTON, Sept 11 (Reuters) - Wall Street ticked up on Friday after a volatile, mostly down week and oil prices dipped after a week-long surge in which Gulf tensions and inflation concerns weighed on markets.

Oil prices retreated from a four-month high on Friday, but accelerating U.S. consumer inflation boosted expectations for an interest rate hike from the Federal Reserve next week, keeping bond yields elevated.

Stock Market Performance

All three major U.S. indices were higher on Friday but still on track for a weekly loss. The Dow Jones Industrial Average rose 1.13%, the S&P 500 gained 1.03% and the Nasdaq Composite was up 1.15%. 

MSCI's gauge of stocks across the globe rose 5.66 points, or 0.50%.

Federal Reserve and Interest Rate Expectations

Traders Await Fed Statement

The Consumer Price Index increased 0.4% last month after edging up 0.1% in July, the U.S. Labor Department's Bureau of Labor Statistics said.

Market Reactions to Inflation Data

Traders were quick to add to bets for a rate hike from the Fed at its two-day meeting next week. Markets now see about an 85% chance of a quarter-point hike, compared with around 67% prior to the data. The Fed will release its latest policy statement on Wednesday, followed by a press conference with Chairman Kevin Warsh.

"Thus far, the Fed has simply stared at inflation with its withering gaze. (Friday's) report will probably change that," said Shawn Snyder, economic strategist at Potomac Fund Management. "It may not be enough to definitively push the Fed to hike rates at its September meeting, but with oil prices hovering around $100 a barrel, it is hard to envision the inflation outlook getting much better in the near term."

Oil Prices and Geopolitical Tensions

Brent crude hit a four-month high of $109.97 a barrel on Friday after a 6% jump the day before, but it soon ran into selling pressure and was last down about 2.9% at $104.49. It was still set for a weekly rise of over 8%. 

Oil flows remained restricted through the Strait of Hormuz as the United States and Iran traded attacks, although prices have fallen since the Financial Times reported that foreign ministers in the Middle East were trying to work out a temporary deal to manage shipping through the waterway.

Ongoing Risks and Market Sentiment

Markets are still pricing in the risk of a protracted war. Comments by President Donald Trump that the war could last beyond the November midterm elections have not helped, with bond yields surging globally on heightened inflation fears. 

Bond Yields, Dollar, and Gold

The benchmark 10-year Treasury yield was slightly higher on Friday at 4.96%, helped by retreating oil prices. It briefly touched its highest in almost three years at 4.9915% immediately after the inflation data.

The U.S. dollar was flat, having gained 0.4% on Thursday against its major peers. It was steady on Friday at 99.1. [FRX/]

Gold rose 0.8% to $4,350 an ounce after dropping nearly 2% on Thursday.

(Reporting by Samuel Indyk, Stella Qiu and Pete Schroeder; additional reporting by Laura Matthews; Editing by Stephen Coates, Elaine Hardcastle, Will Dunham and Chizu Nomiyama)