U.S. stocks advanced on Tuesday as investors mulled whether latest data showing prices rose less than forecast last month would prompt the Federal Reserve to alter its aggressive approach to battling inflation.

• Sign up to get breaking news email alerts sent directly to your inbox

The S&P 500 and the Nasdaq 100 capped a volatile session with a gain after data indicated the worst of inflation has likely passed. While the soft consumer price index data was briefly celebrated with a surge in equities, the indexes pared those gains as investors turned their focus to what the latest numbers mean for the Fed’s path of rates. 

Treasuries surged, with the policy-sensitive two-year yield dropping as much as 24 basis points after the CPI data released. Fed Chair Jerome Powell’s closely watched measure of services prices that excludes energy and rents continued to moderate.

While the Fed is largely expected to raise rates by half a percentage point Wednesday, investors will be watching what officials say for further policy clues. Swap markets are now favoring a quarter-point hike as early as the Fed’s February meeting. 

Still, some investors are cautious about overstating the latest CPI print. 

“While the war against inflation is turning, we are a long way off declaring victory and the Fed will keep its hawkish stance for a while longer, even if it does potentially force a recession,” said Richard Carter, head of fixed interest research at Quilter Cheviot.

Following the Fed, the European Central Bank will announce its rate decision Thursday. Markets will also contend with decisions from the Bank of England and monetary authorities in Mexico, Norway, the Philippines, Switzerland and Taiwan.

Key events this week:

• FOMC rate decision and Fed Chair news conference, Wednesday
• China medium-term lending, property investment, retail sales, industrial production, surveyed jobless, Thursday
• ECB rate decision and ECB President Lagarde briefing, Thursday
• Rate decisions for UK BOE, Mexico, Norway, Philippines, Switzerland, Taiwan, Thursday
• U.S. cross-border investment, business inventories, empire manufacturing, retail sales, initial jobless claims, industrial production, Thursday
• Eurozone S&P Global PMI, CPI, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 rose 0.7 per cent as of 4 p.m. New York time
• The Nasdaq 100 rose 1.1 per cent
• The Dow Jones Industrial Average rose 0.3 per cent
• The MSCI World index rose 0.5 per cent

Currencies

• The Bloomberg Dollar Spot Index fell 0.9 per cent
• The euro rose 0.9 per cent to US$1.0629
• The British pound rose 0.7 per cent to US$1.2360
• The Japanese yen rose 1.5 per cent to 135.62 per dollar

Cryptocurrencies

• Bitcoin rose 3.3 per cent to US$17,750.42
• Ether rose 3.4 per cent to US$1,318.35

Bonds

• The yield on 10-year Treasuries declined nine basis points to 3.52 per cent
• Germany’s 10-year yield declined one basis point to 1.93 per cent
• Britain’s 10-year yield advanced 10 basis points to 3.30 per cent

Commodities

• West Texas Intermediate crude rose 3.2 per cent to US$75.50 a barrel
• Gold futures rose 1.7 per cent to US$1,822.90 an ounce