12:20 PM EDT, 09/11/2024 (MT Newswires) -- The Toronto Stock Exchange is up 5 points at midday, after hitting a low of 22,829 in earlier trade. Investors are digesting the latest U.S. CPI data which seemed to open the door for a 25 basis point cut, and not 50, from the Federal Reserve this month.

Oil prices rose off three-year lows early on Wednesday as a report showed another big draw on U.S. inventories last week, while Hurricane Francine forced the shut in of more than 400,000 barrels per day of Gulf of Mexico oil production.

But gold prices weakened as the dollar and treasury yields rose after a report showed U.S. inflation slowed more than expected last month.

In terms of economics, focus was on US CPI data for August. The Consumer Price Index (CPI) rose 0.2% month on month, bang on the consensus forecast. On a 12-month basis, CPI fell to 2.5% (from 2.9% in July). Excluding food and energy, core prices rose 0.3% m/m, following a gain of 0.2% m/m in July. This came in above the consensus forecast, which called for a more modest gain of 0.2% m/m. The 12-month change on core held steady at 3.2%, while the three-month annualized ticked up to 2.1% (from 1.6% in July).

In TD's view, the August readings of employment and inflation have done little to strengthen the case for a larger 50 basis point (bps) rate cut next week. Instead, TD said, the Fed is likely to "play it cool" and cut rates by just 25 bps, but also signal more easing in the months ahead. TD suspects that the FOMC's revised "dot plot" included in the Summary of Economic Projections (released simultaneously with the September 18th interest rate announcement) is likely to show a total of 75 bps of easing (previously 25 bps) by year-end.

For RBC the bottom line is that while most of the pullback in year-over-year CPI growth in August came from the volatile energy component, underlying details continue to point to softening broader price growth trends. And, RBC said, a gradual updrift in the unemployment rate should signal to monetary policymakers that inflation will continue to drift lower rather than higher. It added the small upward surprise in core price growth reduces the odds -- which RBC already thought were quite low -- of a larger-than-normal 50 basis point interest rate cut from the Fed later this month, but should do nothing to dissuade the central bank from kicking off a gradual easing cycle with a 25 reduction.