U.S. stocks posted modest gains in a listless session, while Treasuries rose after a report showed inflation moderated slightly in April and swaps traders upped bets the Federal Reserve will cut rates this year.

The S&P 500 wavered between gains and losses before ending Wednesday’s session up 0.4 per cent. The tech-heavy Nasdaq 100 posted a 1.1 per cent gain, the highest close for the gauge since Aug. 18. So-called Faang names, Amazon.com Inc., Apple Inc. and Microsoft Corp., bolstered the benchmarks. Walt Disney Inc. shares slid 3.1 per cent in afterhours trading on faster-than-expected streaming losses.

US consumer prices rose 0.4 per cent in April with headline CPI up 4.9 per cent on a year-on-year basis, its first reading below 5 per cent in two years. That’s still well above the 2 per cent level targeted by the Fed as central bank officials juggle the need to curb rampant inflation against a potential recession and banking sector angst.

Policy-sensitive two-year Treasury yields fell to 3.91 per cent while rates on the 10-year tenor were 3.44 per cent. Swaps contracts indicate traders are pricing in roughly 75 basis points of interest rate cuts this year.

“Yields are down, tech stocks rally,” Liz Young, head of investment strategy at SoFi, by phone. “CPI came in favorably in the sense that it’s finally below 5 per cent. We seem to be moving in the right direction on some of the core pieces, particularly some of the services pieces. That is promising because that’s been the part that really still concerns most of us. However, it’s still at 4.9 per cent and core is still at 5.5 per cent — that didn’t come down at all year over year.”

“This is not something where I think stocks should cheer it to a level that seems like we’re out of the woods. We’re certainly not,” she added.

While traders are pricing in a pause at the next central bank meeting and rate cuts starting as soon as July, it’s not a given. “There’s a lot of looking through rose-colored glasses to all sorts of outcomes that are going to lead the Fed to be able to cut rates. But they’re just forecasts, they haven’t happened yet,” said David Donabedian, chief investment officer of CIBC Private Wealth U.S..

“If you took a snapshot of the economic and inflation data today and used that as your only guide, that would point you to no rate cuts at all this year,” Donabedian said. “The market is latching onto the-Fed-will-be-our-friend kind of a view.”

An index of the dollar weakened against a basket of its G-10 peers. In commodities, spot gold edged lower and oil fell after U.S. government data showed crude inventories rose last week.

Investors remain on guard to risks from the standoff in U.S. debt talks, with some of Wall Street’s most experienced traders warning of “unthinkable” long-term damage from a default.

President Joe Biden and congressional Republicans made little tangible progress toward averting a first-ever US default. “If we default on our debt, the whole world is in trouble,” Biden said in remarks Wednesday. The president and House Speaker Kevin McCarthy plan to hold another meeting on Friday.

The cost of insuring America’s debt against default now eclipses that of some emerging markets and even junk-rated nations. Mounting investor anxiety about the prospect of a default has made it more expensive to insure Treasuries than the bonds of — among others — Greece, Mexico and Brazil, which have defaulted multiple times and have credit ratings many rungs below that of the U.S.

Traders will be turning their gaze to Thursday’s producer prices report next. In March, the measure of wholesale prices fell by the most since the start of the pandemic. Economists surveyed by Bloomberg are expecting the headline number to rise 0.3 per cent.

Here’s what Wall Street said about CPI data:

Priya Misra, global head of rates strategy at TD Securities

“Inflation came in a bit weaker and that explains why all asset classes are rallying.”

“Market may be too optimistic and put too much weight on the weakness in some series that are inherently volatile, such as hotels. We need more CPI prints to clarify that inflation is definitely declining.”

Louis Navellier, chief investment officer of Navellier & Associates

“The fading enthusiasm seems to be that the ‘Super Core’ number - excluding food, energy, and shelter - was higher than forecast.”

“The Fed could go either way next month as even though the headline CPI is now below the 5 per cent Fed Funds rate, trends are flattening well above their mantra of 2 per cent, and with the economy still growing and unemployment at 50-year lows, their efforts to slow the economy by rising rates are so far doing the most damage to regional banks.”

Quincy Krosby, chief global strategist for LPL Financial

“Rent-related inflation will indicate definitive signs of easing, helping to push overall headline inflation lower.

“Today’s report suggests that the Fed’s campaign to quell inflation is working, albeit more slowly than they would like.”

John Leiper, chief investment officer at Titan Asset Management

“There’s definitely some relief that it’s not hotter than expected, and it bolsters the case for a Fed pause. Over the next few months, we’ll get the base effect rolling off, which may help further. Bigger picture, the market is hyper-fixated on the pause but a pause is still restrictive, and we still have QT. If we see the economic data continue to decline, which I think we will, then I don’t see this as good for risk assets given current valuations.”

Ricardo Gil, head of asset allocation at Trea Asset Management

“The CPI number is in-line with expectation, but 0.4 is still very high and getting inflation to bellow 3 per cent is showing to be a difficult task. The sentiment is overall more positive, but European trading has been very steady so far this week.”

Alexandre Halbin, portfolio manager at Swisslife Gestion Privee

“The data is in line and there’s no surprises here. I’m rather reassured and the main takeaway is that the probability of an unexpected twist in Jerome Powell’s monetary policy is reducing. We’ll see about a pivot at a later stage. It’s good news that there is no bad news.”

Wolf von Rotberg, equity strategist at Bank J. Safra Sarasin

“The CPI print makes it unlikely that the Fed once again reverses course and hikes in June. Slightly surprising is the divergence between a more positive labor market last week and a slightly softer CPI print today, raising hopes that economic headwinds are less pronounced that feared.”

Key events this week:

• China PPI, CPI, Thursday
• U.K. BOE rate decision, industrial production, GDP, Thursday
• U.S. PPI, initial jobless claims, Thursday
• Group of Seven finance minister and central bank governors meet in Japan, Thursday
• U.S. University of Michigan consumer sentiment, Friday
• Fed Governor Philip Jefferson and St. Louis Fed President James Bullard participate in panel discussion on monetary policy at Stanford University, Friday.

Some of the main moves in markets:

Stocks

• The S&P 500 rose 0.4 per cent as of 4:01 p.m. New York time
• The Nasdaq 100 rose 1.1 per cent
• The Dow Jones Industrial Average was little changed
• The MSCI World index rose 0.2 per cent

Currencies

• The Bloomberg Dollar Spot Index fell 0.3 per cent
• The euro rose 0.2 per cent to US$1.0983
• The British pound was little changed at $1.2626
• The Japanese yen rose 0.7 per cent to 134.34 per dollar

Cryptocurrencies

• Bitcoin rose 0.2 per cent to $27,705.66
• Ether was little changed at $1,848.86

Bonds

• The yield on 10-year Treasuries declined eight basis points to 3.44 per cent
• Germany’s 10-year yield declined six basis points to 2.29 per cent
• Britain’s 10-year yield declined six basis points to 3.80 per cent

Commodities

• West Texas Intermediate crude fell 1.2 per cent to $72.79 a barrel
• Gold futures fell 0.3 per cent to $2,037.10 an ounce