Dow jumps 400 points, Nasdaq surges 2% as investors cheer lighter-than-expected inflation report

The Dow opened higher by more than 400 points, while the Nasdaq Composite jumped more than 2%.

The rally is broad, with only energy stocks struggling.

-Jesse Pound

Treasury yields dropped on Wednesday as a highly anticipated inflation figure came in flat compared with the previous month.

The yield on the benchmark 10-year Treasury note tumbled 9 basis points to 2.67%, hitting the lowest level in a week. The yield on the 30-year Treasury bond fell 6 basis points to 2.96%.

The inflation report suggested to some that price pressures might have peaked, which could spark speculations that the Federal Reserve could conduct a smaller interest-rate hike next month.

“Overall, incremental confirmation that the Fed’s efforts to combat consumer price increases have been successful,” Ian Lyngen, BMO’s head of U.S. rates, said in a note. “The combination of NFP and CPI for July leave the 75 bp vs. 50 bp Sept hike debate alive and well.”

— Yun Li

Wednesday’s July CPI report, which showed price increases slow, is a sign that the economy has hit peak inflation, according to Jim Cramer.

“We obviously had peak inflation,” he told CNBC’s “Squawk Box” on Wednesday, noting that energy, travel and prices at the pump have continued to come down.

Cramer added that the recent hike from the Federal Reserve is likely the central bank’s best attempt to get surging prices under control.

Moving ahead, Cramer expects the central bank to hike rates again come September but likely by 50 basis points compared to the long-anticipated 75 basis point move.

“I think what matters here is that these are the numbers that Powell wanted,” he said.

— Samantha Subin

The CPI report showing slowing inflation gave investors the green light to buy technology shares beaten-up this year on concern over the impact of rising interest rates on growth companies.

Tesla was higher by 4% in premarket trading. Amazon and Meta gained 3%.

Even chip stocks, besieged by negative earnings warnings in the sector this week, were rebounding in early trading. Nvidia and AMD were up more than 3% apiece.

—John Melloy

Good news in the CPI report appears to have lowered the market odds of a three-quarters-of-a-percentage-point Fed hike in September, but some still believe the central bank will remain aggressive.

“I still think the Federal Reserve is on for 75 basis points….They need to see much more improvement than this sustained, especially in the core. We could be looking at slower moves by the end of the year,” said Diane Swonk , chief economist KPMG.

Core CPI, which the Fed traditionally focuses on, is still well above the central bank’s 2% target.

—Jesse Pound, Patti Domm

Stock futures ripped higher and bond yields tumbled after the much-anticipated consumer prices report for July was much better than feared.

Prices rose 8.5% in July on an annual basis, a slowing pace from June. Month to month, inflation was flat as energy prices broadly declined 4.6% and gasoline fell 7.7%. That offset a 1.1% monthly gain in food prices and a 0.5% increase in shelter costs. Economists surveyed by Dow Jones were expecting headline CPI to increase 8.7% on an annual basis and 0.2% monthly.

Excluding volatile food and energy prices, so-called core CPI rose 5.9% annually and 0.3% monthly, compared to respective estimates of 6.1% and 0.5%.

—John Melloy, Jeff Cox

Investors cheered a cooler-than-expected inflation report, with Dow futures jumping 400 points. The Nasdaq 100 futures gained more than 2%, which means the tech-heavy Nasdaq Composite could erase its losses from Tuesday when the market options.

In the bond market, Treasury yields fell after the report.

-Jesse Pound

Shortly before the CPI report, futures have built on their morning gains.

Futures for the Dow Jones Industrial Average rose 101 points, or 0.3%. S&P 500 futures gained 0.4% and Nasdaq 100 futures climbed 0.5%.

-Jesse Pound

Galaxy Digital CEO Michael Novogratz said on “Squawk Box” that he was watching the Treasury yield curve as a key indicator of what could happen next for markets.

“The most fascinating thing is the 2-10s steepener,” Novogratz said. “The curve has flattened to negative-50 basis points between 2s and 10s. You go back [50] years, only one time in the 70s did it get through that. At one point, that’s going to flinch, and I think that will be the big inflection point.”

A basis point is equal to 0.01 percentage points.

When the 2-year Treasury yield trades above the 10-year yield, many on Wall Street see that as strong recession indicator. On Wednesday, the the 2-year yield was trading at 3.278%, while the 10-year was at 2.803%.

Novogratz said that he believes investors are overconfident in a future pivot from the Federal Reserve, which could be one of the reasons for long-term rates trading below short-term rates.

—Jesse Pound

Goldman Sachs has cut its gold forecast, saying it overestimated how much recession fears would drive prices.

The firm now sees gold averaging $1850/toz over the next three months, before increasing slightly to $1,950/toz for the remainder of the year.

The new forecasts are down from a prior 12-month outlook of $2,500/toz. The firm said it came to that target after looking at how gold traded over the last 20 years, noting that recession risks around tightening cycles was previously a more important driver than real rates.

“While we expected nominal rates to increase on the back of Fed hikes we did not expect inflation expectations to fall so much after failure of the transitory narrative and high persistent inflation surprises,” Goldman wrote in a note to clients.

“The main conclusion is that in the current environment of tightening policy and persistent recession concerns the tactical direction of gold will be determined by shifts in Fed priority function between inflation fight and growth support,” the firm added.

U.S. gold futures traded at $1,811.40/oz on Wednesday.

— Pippa Stevens

The recent market rally could put stocks at risk of a pullback from Wednesday’s CPI reading, according to BTIG technical strategist Jonathan Krinsky.

The strategist said in a note to clients on Tuesday evening that stocks have made some counterintuitive moves after CPI reports this year, with positioning ahead of the report seeming to be a key factor in how the market reacts.

“At the end of the day nobody knows what the number will be or how the market will react to that number, but from our perspective things are coming in pretty overbought which leaves room for the market to move lower post the number,” Krinsky wrote.

— Jesse Pound

Elon Musk sold shares of Tesla worth roughly $6.88 billion — despite earlier this year saying he has “no further TSLA sales planned.”

The Tesla CEO sold 7.92 million shares of the electric vehicle company, according to a succession of financial filings on Tuesday night. The SEC filings showed that the transactions occurred between Aug. 5 and 9. Tesla had its annual shareholder meeting on Aug. 4.

Earlier this year, Musk took to social media to say that he does not plan to sell Tesla shares after April 28. The billionaire investor is currently embroiled in a legal battle with Twitter, which he had agreed to buy for about $44 billion.

Shares of Tesla are up 2% in Wednesday premarket trading; Twitter is up 4%.

— Sarah Min

European markets were mixed on Wednesday morning as global investors awaited the key U.S. inflation print.

The pan-European Stoxx 600 was roughly flat by late morning. Travel and leisure stocks climbed 1.3% while health care stocks dropped 0.8%.

On the data front in Europe, German final July consumer price inflation came in at 7.5% year-on-year and 0.9% monthly, official figures revealed Wednesday, roughly in line with expectations.

Earnings remain a key driver of individual share price movement in Europe. Ahold Delhaize, ABN AMRO, E.On, TUI Group, Metro, Deliveroo, Prudential and Aviva were among the major companies reporting before the bell on Wednesday.

– Elliot Smith

China’s consumer price index in July reached a two-year high as pork prices rebounded, according to official data released Wednesday.

The prices of pork rose by 20.2% in July from a year ago, marking the first increase since September 2020, according to data from Wind Information.

Additionally, prices of pork posted their largest month-on-month surge on record — up by 25.6%. Agricultural products analyst at Nanhua Futures, Bian Shuyang, said in a statement that the reluctance of farmers to sell — in hopes of getting higher prices in the future — contributed to the pork price surge.

Bian added that live hog producers are now operating at a profit, indicating there is more supply to come. Two upcoming Chinese holidays in September and October will help support consumer demand for pork, he said.

Nevertheless, Wednesday’s inflation data continued to reflect lackluster demand in China’s economy.

The consumer price index rose by 2.7% in July, missing expectations for a 2.9% increase, according to analysts polled by Reuters. In addition, despite the summer holidays, the tourism price component rose by only 0.5% in July from a year ago.

— Lee Ying Shan and Evelyn Cheng

Market watchers are looking to July’s inflation report — slated to be released later today — for clues on what the Federal Reserve will do next at its September meeting.

Ahead of the report’s release, CNBC Pro scoured through Wall Street research to identify what investment banks are watching for signs of consumer weakness, and their advice on how investors should position in this environment.

Find out more about what the consumer-related stocks that analysts at Goldman Sachs, Bank of America and Barclays are loving.

— Zavier Ong

In addition to Wednesday’s consumer price index report, markets will also digest Fedspeak from two regional bank presidents. They may give further insight as to the central bank’s course forward and the size of future rate hikes, especially at the September meeting.

Charles Evans, president of the Federal Reserve Bank of Chicago, will speak Wednesday at 11:00 am ET at Drake University in Des Moines, Iowa.

Later, Minneapolis Fed President Neel Kashkari will speak on a panel about stagflation at the Aspen Economic Strategy Group.

—Carmen Reinicke

The July inflation report may show that prices have cooled – at least, that’s what economists and investors are hoping.

Economists estimate for the July report is that the consumer price index increased only 0.2%, less than the 1.3% it jumped in June, according to Dow Jones. That would bring the year-over-year pace of consumer inflation in July to 8.7%, less than the 9.1% seen in June.

If the reading is lower than it was last month, it may show that we’re past peak inflation and beginning to trend in the right direction. That will inform how aggressively the Federal Reserve hikes rates going forward.

—Carmen Reinicke

Shares of Coinbase and Roblox are making some of the biggest moves in after hours trading Tuesday after reporting earnings that failed to meet Wall Street’s expectations.

Coinbase slipped more than 5% after reporting earnings showing a larger-than-expected loss during the quarter, and the company missed revenue estimates.

Roblox plunged more than 16% after missing on earnings and revenue. In addition, the company also reported only 52.2 million average daily active users, down from the 54.1 million it reported in the previous quarter.

—Carmen Reinicke