U.S. stocks, Treasury yields gain as CPI cements Fed pause

U.S. stocks, Treasury yields gain as CPI cements Fed pause

By Stephen Culp

NEW YORK (Reuters) -Wall Street eked out nominal gains and U.S. Treasury yields held steady on Wednesday after crucial inflation data appeared to remain on its downward path and fortified expectations that the Federal Reserve will let interest rates stand, for now.

All three major U.S. stock indexes were green directly from the starting gate, but lost momentum as trading progressed, oscillating between negative and positive territory.

U.S. consumer prices (CPI) data showed prices heated up in August due to rising energy prices, but the “core” measure, which excludes volatile food and energy items, remained on its meandering path down to the Federal Reserve’s average 2% annual inflation target.

“While rising fuel costs could be considered transitory, (the report is) a bit of a setback on a month-to-month basis,” said Peter Cardillo, chief market economist at Spartan Capital Securities.

“But there were no major surprises in the report; the market was looking for higher inflation and we got it,” Cardillo added, saying he expects the Fed to leave interest rates unchanged next Wednesday when the central bank releases its summary economic projections. “The general trend still looks favorable.”

Even so, financial markets have cemented a 95% likelihood of the Federal Reserve standing pat at next week’s monetary policy meeting, leaving the key Fed funds target rate at 5.25%-5.50%, according to CME’s FedWatch tool.

The Dow Jones Industrial Average rose 12.27 points, or 0.04%, to 34,658.26, the S&P 500 gained 4.6 points, or 0.10%, to 4,466.5 and the Nasdaq Composite added 27.29 points, or 0.2%, to 13,800.91.

European shares pared their losses in the aftermath of the CPI report as investors focused their attention on this week’s European Central Bank policy meeting.

The pan-European STOXX 600 index lost 0.34% and MSCI’s gauge of stocks across the globe %.

Emerging market stocks lost 0.07%. MSCI’s broadest index of Asia-Pacific shares outside Japan closed 0.2% lower, while Japan’s Nikkei lost 0.21%.

U.S. Treasury yields ticked higher in the wake of the CPI report, which suggested the Fed will keep interest rates steady at its upcoming meeting.

Benchmark 10-year notes last fell 5/32 in price to yield 4.2822%, from 4.264% late on Tuesday.

The 30-year bond last fell 8/32 in price to yield 4.3617%, from 4.346% late on Tuesday.

The greenback advanced modestly against a basket of world currencies following the inflation data, which appeared to keep the door open to additional interest rate hikes from the Fed after next week’s expected pause.

The dollar index rose 0.06%, with the euro down 0.18% to $1.0733.

The Japanese yen weakened 0.34% versus the greenback at 147.59 per dollar, while Sterling was last trading at $1.2488, up 0.03% on the day.

Oil prices reversed earlier gains as inflation concerns offset tight supply. [O/R]

U.S. crude fell 0.03% to $88.81 per barrel and Brent was last at $92.09, up 0.03% on the day.

Gold prices edged lower, hovering near two-week lows after the CPI report helped give the dollar a slight boost.

Spot gold dropped 0.1% to $1,910.59 an ounce.

(Reporting by Stephen Culp; Additional reporting by Amanda Cooper in London; Editing by Alison Williams)