Dow advances over 400 points after CPI data shows cooling inflation in July

What’s driving markets

The July U.S. consumer-price index (CPI) report released at 8.30 a.m. Eastern showed a cooling headline inflation and a sticky core inflation.

The consumer price index was unchanged in July, compared with the 1.3% gain in the prior month, according to the Labor Department. Economists polled by The Wall Street Journal had estimated a 0.2% gain in July.

The rate of inflation in the 12 months ended in July slowed to 8.5% from a 41-year high of 9.1% in June.

The closely-watched core measure of inflation that omits volatile food and energy prices rose 0.3% in July, a slower pace from a 0.7% gain in the prior month. The 12-month rate remained steady at 5.9%.

See: U.S. consumer price inflation surprises to downside in July

Investors have been eager to see that inflation has peaked. Equities have been roiled in 2022 but despite bouncing off its mid-June low, the S&P 500 index remains down 13.5% for the year to date. The drop has been driven by fears that multidecade-high inflation will batter consumer confidence, cause the Federal Reserve to hike borrowing costs aggressively and tip the U.S. economy into recession.

“If this is truly the peak in inflation, this could officially signal an economic tide shift that both consumers and investors can appreciate,” Rusty Vanneman, chief investment strategist at Orion Advisor Solutions wrote in a Wednesday note. “That said, the absolute level of inflation remains painfully high and the risk of being a false peak remains, especially given that two important drivers of inflation are still troublesome: wages and housing.”

After the inflation report was released, the dollar index
DXY,
-1.31%
was down 1% to 105.28 and U.S. 10-year Treasury yields
TMUBMUSD10Y,
2.713%
eased 7.9 basis points to 2.705%.

Damping sentiment is a recent rash of poorly-received corporate news. There is particular concern about the health of the semiconductor sector after Micron
MU,
+0.99%
followed Nvidia
NVDA,
+1.91%
with a warning about revenues. The PHLX Semiconductor Index
SOX,
+1.85%
is down 26% so far in 2022.

In addition, a recent rally in badly battered former bull market darlings has come to a juddering halt in the past few sessions, also hurting retail investor confidence. And some are due for more pain on Wednesday.

Roblox
RBLX,
-8.57%,
the videogame group, lost 4% after a key sales metric declined for the second consecutive quarter.

Companies in focus

• Sweetgreen Inc.
  SG,
  -2.97%
  shares plunged 9.8% after the salad restaurant chain’s second-quarter financial results missed Wall Street’s expectations. 

• Coinbase
  COIN,
  +2.17%
  shares gained 2.9% as bitcoin price advanced Wednesday, despite that the cryptocurrency exchange said volumes and monthly user counts could be lower in the current quarter than what was seen in the last one.

• Shares of Plug Power Inc. PLUG gained 11% Wednesday despite that the hydrogen fuel-cell company fell shy of expectations with its latest revenue and earnings.

• Wendy’s Co.
  WEN,
  -5.02%
  shares lost 1.6%, after the fast-food company posted weaker-than-expected revenue for the second quarter. 

How are other assets faring

• Oil futures were softer, with U.S. WTI
  CL.1,
  -3.35%
  off 0.4% to $90.12 a barrel.

• Gold
  GC00,
  +0.06%
  was flat at $1,812.3 an ounce

• Bitcoin
  BTCUSD,
  +3.27%
  advanced 3.8% to $24,055.7

• Asia markets were softer after data showed China’s inflation at a two-year high. The Shanghai Composite
  SHCOMP,
  -0.54%
  lost 0.5%, Hong Kong’s Hang Seng
  HSI,
  -1.96%
  shed 2% and Japan’s Nikkei 225
  NIK,
  -0.65%
  fell 0.65%.

• In Europe, the Stoxx 600
  SXXP,
  +0.78%
  gained 0.8%.