Dow gains 200 points as investors brace for August inflation report and more Fed rate hikes

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The stock market moved higher on Monday, extending recent gains ahead of a major inflation report this week, with investors hoping for more signs that high consumer prices have peaked as the Federal Reserve continues to raise interest rates aggressively.

Key facts

Shares continued to rise after their first weekly gain in a month last Friday: the Dow Jones Industrial Average rose 0.7%, more than 200 points, while the S&P 500 gained 1.1% and the tech-heavy Nasdaq Composite 1.3%.

Markets initially received a boost after a New York Federal Reserve survey found that a decline in gas prices is fueling growing hopes that inflation will cool, building on recent optimism after consumer prices cooled slightly in July and did so again in July will happen. August.

Investors are now looking ahead to Tuesday’s August Consumer Price Index report, with economists expecting inflation to rise 8.1% from a year ago, which would be a slight drop from 8.5% in July. .

Fed officials have continued to promise in recent weeks that the central bank will continue to raise interest rates – even if it hurts economic growth – until there is a meaningful drop in inflation, which they admit will likely “take some time”.

Traders now see a 92% chance — up from about 70% two weeks ago — that the central bank will raise interest rates by 75 basis points for the third time in a row, after similar hikes in June and July, according to data from the CME group.

Major Wall Street firms have similarly raised their expectations for a 75 basis point rate hike, with JPMorgan analysts saying in a recent note they expect “further confirmation of a spike” in inflation, especially as gas prices continue to fall.

Crucial Quote:

“Stocks are rising as investors expect inflation to show further signs of slowing and as Ukraine’s counter-offensive in the east gains momentum,” said Edward Moya, senior market analyst at Oanda. Ukraine’s “sudden momentum” and the recent success pushing back Russian forces have fueled optimism in the markets, with many hoping for a “turning point” in the conflict, which has been underway since late February, he adds. . While Tuesday’s inflation report will “probably show some easing of price pressures,” it won’t convince the Fed to change its “aggressive stance on monetary policy tightening,” Moya predicts.

What to pay attention to:

Despite recent gains, the consensus stance in the markets is “cautious and skeptical,” and buying is likely to “extinct” after Tuesday’s consumer price index report, Vital Knowledge founder Adam Crisafulli said. “Developments in Ukraine are nowhere near enough attention,” he adds; “To say the least, this is very optimistic for the outlook for the eurozone.”

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