Dow Jones Industrial Average rips higher as CPI drives rate cut bets higher

• The Dow Jones rocketed to new all-time highs on Thursday.
• US CPI inflation clocked in roughly around expectations, cementing odds of a Fed rate cut next week.
• UoM Consumer Sentiment figures due on Friday are unlikely to shift the needle.

The Dow Jones Industrial Average (DJIA) found a new record high on Thursday, climbing over 600 points at its peak and tapping 46,111 for the first time ever. US Consumer Price Index (CPI) inflation came in roughly around expectations for August, pinning hopes for a September rate cut from the Federal Reserve (Fed) to the ceiling.

Headline CPI inflation rose again in August, with the annualized index rising to 2.9% and the monthly number accelerating to 0.4% as front-end inflationary pressure continues to build. Shelter and food prices were the largest drivers of near-term inflationary pressure, with the grocery items index rising 0.5% over a single month. Core CPI inflation, or headline inflation less energy and food prices, rose to 2.9% YoY, landing within median market forecasts.

CPI inflation uptick keeps rate cut bets on the rails

Despite another rise in key inflation pressure, August’s CPI inflation data wasn’t enough to derail market expectations for a Fed interest rate cut next week. According to the CME’s FedWatch Tool, interest rate futures traders are fully pricing in three rate cuts before the end of the year. A 25-basis-point cut is a foregone conclusion at the Federal Open Market Committee’s (FOMC) interest rate decision on September 17, and rate markets are pricing in nearly 95% odds that the Fed will deliver follow-up rate trims on October 29 and December 10.

University of Michigan (UoM) Consumer Sentiment Index data is due on Friday, but the datapoint is unlikely to result in any meaningful shifts in market sentiment. The aggregated survey index is expected to tick down to 58.0 from 58.2.

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