Positive tone
Wall Street opened sharply higher on Friday, with the Dow Jones Industrial Average and S&P 500 both gaining 1.1% and the Nasdaq rising 1.2% as investors digested the latest inflation data and looked ahead to next week's Federal Reserve meeting.
The August Consumer Price Index showed inflation remained sticky, reinforcing market expectations that the Fed will raise interest rates by 25 basis points next week.
Jeffrey Roach, chief economist at LPL Financial, said the hotter-than-expected CPI report could strengthen the case among Fed policymakers for another rate hike.
"Today's CPI report came in hotter than expected and the hawks may become the majority. But should the Fed hike?" Roach said.
Markets are now widely expecting a 25-basis-point increase next week, although Roach suggested the economic impact could be more limited than in previous tightening cycles.
"A growing share of economic activity is less interest-rate sensitive, much as it was during the 2022-23 hiking cycle," Roach said. With AI investment surging and affluent consumers and boomers continuing to spend on travel, demand could remain resilient despite tighter monetary policy.
Roach expects nominal economic growth to remain above 6% over the next few quarters, supporting business revenues even as the Fed keeps policy tight.
Meanwhile, Oracle Corp shares gained more than 2% at the open after the technology company reported strong cloud computing growth in its latest quarter, helping support the broader tech sector.
Core inflation edges higher
US inflation rose in line with expectations in August, with the Consumer Price Index increasing 3.4% year-over-year and 0.4% from the previous month.
Core CPI, which excludes food and energy prices, rose 2.4% annually, matching forecasts, while the monthly increase of 0.3% came in slightly above expectations for a 0.2% gain.
The data showed headline inflation meeting forecasts but underlying monthly price pressures coming in somewhat stronger than expected.
Ahead of the bell
US stock futures were in a brighter mood in premarket trading on Friday as investors braced for inflation data that could make or break growing bets on a Federal Reserve rate hike next week.
Futures on the Dow Jones Industrial Average rose 0.5%, with the S&P 500 up by the same margin and Nasdaq 100 contracts adding 0.6%. The gains offered a tentative reprieve after the major indexes extended their losing streak to four days, leaving all three on course for weekly falls.
Oracle led the premarket movers, jumping more than 5% after strong cloud computing growth pointed to returns from its AI data centres.
Attention now swings to August's Consumer Price Index, the final inflation reading before policymakers meet.
Economists expect prices to rise 3.4% year on year, unchanged from July, keeping inflation well above the Fed's 2% target. Spiking oil prices have sharpened those concerns, pushing traders to price in a 72% chance of a hike this month.
