Traders work on the trading floor at the New York Stock Exchange (NYSE) in Manhattan, New York City
Traders work on the trading floor at the New York Stock Exchange (NYSE) in Manhattan, New York City, U.S., August 8, 2022.

Wall Street was set to open sharply higher on Wednesday after data showing a slower-than-expected rise in inflation last month prompted traders to cut their bets on a third straight 75-basis-point interest rate hike in September.

U.S. annual consumer prices slowed to 8.5% in July. Economists polled by Reuters expected the Consumer Price Index to show year-on-year headline inflation of 8.7%, far above the Federal Reserve's target of 2%, but lower than last month's 9.1%.

Boosting sentiment, core inflation remained unchanged at 5.9%, while economists were expecting a rise to 6.1%.

The market is now pricing in 33.5% chance of a 75 basis point increase in fund rates at the Fed's next meeting in September, compared with 67.5% before the data.

"The sign of a slowing in the rate of inflation offers hope the Federal Reserve's rate increases won't need to go as far as previously thought," said Mike Owens, global sales trader at Saxo Markets.

"Those moves may be short lived if the market returns its attention back to the Fed, one month of data won't change their current hawkishness as it stands by its mission to force inflation down."

At 09:06 a.m. ET, Dow e-minis were up 419 points, or 1.28%, S&P 500 e-minis were up 68.75 points, or 1.67%, and Nasdaq 100 e-minis were up 295.25 points, or 2.27%.

After a rough start to the year, the benchmark S&P 500 is up nearly 13% from its mid-June low, largely on expectations the Fed will be less hawkish than anticipated in its efforts to provide a soft landing for the economy.

High-growth and megacap technology stocks gained in premarket trading as Treasury yields fell sharply across the board. Apple Inc, Alphabet Inc and Amazon.com Inc rose between 1.8% and 3.3%. [US/]

Tesla Inc gained 4.6% after CEO Elon Musk sold $6.9 billion worth of company shares.

Musk said the funds could be used to finance a potential Twitter deal if he loses a legal battle. Twitter shares rose 3.8%.

Meta Platforms Inc added 3.9% after the Facebook-parent said on Tuesday that it had raised $10 billion in its first-ever bond offering.

Economy-sensitive banks also advanced in trading before the bell, with Goldman Sachs Group Inc and JPMorgan Chase & Co climbing 1% each.