TL/DR: US inflation cools as expected, September rate hike bets fade, miners drag on FTSE 100 as Antofagasta cuts outlook, oil eases despite simmering US-Iran tensions, Kospi enters bull market as AI trade firms as strong data centre demand lifts CoreWeave, Super Micro Computer and Lumentum.
Stocks and bonds rallied a bit after US inflation data cooled and eased expectations for the Federal Reserve to raise rates in September but we didn't see a strong directional shift. Since the in-line inflation report markets have backed off the Sep hike from about 50% to around 36% market-implied odds; longer odds but not off the table. Meanwhile hot weather and the World Cup sent June's GDP growth to the top end of expectations in the UK to deliver a pretty robust Q2 expansion for the economy. Miners are taking the shine off the FTSE 100 this morning in an otherwise positive session for equity markets.
July marked 65 consecutive months with inflation running above target. Nevertheless, odds of a rate hike in September were pushed out by the US CPI report, which came in bang in line as far as markets are concerned. Headline CPI rose +0.1% month-on-month and core rose +0.2% to give annual inflation of +3.4% and +2.5% respectively. It looks as though this was soft enough for the market to give the Fed more time to sit around with inflation above target. Though we should note that there are details here to consider like the fact core goods prices rose 0.20% in July in the CPI, following two months of declines. This was the largest month-over-month rise since Sept 2025. Lettuce prices slumped due to the multistate cyclospora outbreak.
As noted a month ago, the run of above-target inflation corresponds to the labour market holding incredibly strong for an unusually long period. Inflation is therefore not a story of oil prices, Ukraine and Iran, nor tariffs, but of a persistently tight labour market. This means, surely, it's up to the Fed to sort it out by raising interest rates. However, underlining the pressure on the Fed to keep rates lower, the US budget deficit rose to $432.3 billion in July, the highest since March 2021. indeed with a relatively cool CPI print and longer-dated Treasury yields still near the cycle highs we could argue that these levels are more about the huge amount of government and corporate debt coming down the pipeline, expressive of market angst over both fiscal fragility and how markets can absorb the sheer amount of AI capex and infrastructure being touted.
US PPI inflation today could influence the PCE inflation forecasts as a leading indicator for the Fed's (still) preferred gauge of inflation. Year-on-year headline PPI is expected at +4.9% vs +5.5% prior, with the month-on-month at +0.2% vs the -0.3% prior. Core PPI is expected at +4.1% YoY, down from +4.7% previous, with MoM at +0.3% vs +0.2% prior. The Cleveland Fed nowcast model indicates core PCE +0.25% m/m increase in core for July and 0.27% for August. If this is kept up through the second half of the year then the Fed should tighten, according to the NY Fed's John Williams. Japanese PPI missed expectations, easing slightly to 7.2% year on year in July.
UK growth figures look a little better than we might have expected. Relatively robust gdp figures indicate the economy is holding up alright despite the pressures from the Middle East conflict, inflation and a soft labour market. The +0.4% expansion was slower than Q1 but not excessive. Monthly figures always should be taken with pinch of salt, but the early indicators suggest June saw a decent uptick thanks to the World Cup and the weather.
Escalating tensions...a term much overused for sure but there is no progress in the Middle East of note. US futures were positive on the CPI report ahead of the cash equity open but then the market took a sharp turn lower on a post from President Trump that indicated there was no appetite to find a solution to reopen the Strait of Hormuz:
The U.S.A. has total control over the Strait of Hormuz. I THINK WE WILL KEEP IT! Our Naval Blockade is being called, by everyone, “A WALL OF STEEL,” and there is nothing Iran can do about it. They have no Navy, they have no Air Force, their remaining soldiers are unpaid, the IRGC is decimated and fleeing, and their “Leadership” is uncertain, at best! They have No Money - Their country is “shot.”
“The Strait of Hormuz remains blocked and will not be reopened until Iran’s conditions are accepted,” Iranian authorities replied. So I guess either way it's shut. Crude futures haven't really moved a lot over the last 24 hours and Brent prices are backing off $90 rather than anything else without any further negative macro catalyst.
The S&P 500 and Nasdaq Composite both rose, with the broad index +0.26% to reach 7,748.50, while the Nasdaq added 0.54% to finish at 26,588.49 with semis (SOXX) trading +2%. A rebound in the AI trade sent the Kospi another 4% higher to enter a technical bull market. It's incredibly volatile and down to just two giant memory names – SK Hynix and Samsung. The other name in this space is Micron. Counterpoint reports that Chinese firm Yangtze Memory Technologies topped Micron and SK Hynix in terms of shipments of NAND memory chips. This is the big worry for the investment thesis on some of these picks-and-shovels stocks - that China can flood the market with much cheaper variants. Samsung is number one in the market with 25% share. Japan's Topix hit a record high with semis tracking higher overnight with a fillip from easing Treasury yields alongside a =19% jump for CoreWeave on surging AI demand, while Nebius, another AI infrastructure name, added +34%.
Scottish Mortgage topped the FTSE 100 early on Thursday with the AI trade producing winners – notably major holding SpaceX rallied 10% yesterday and is now up 40% in the last 5 days. The latest boost for the stock was from Morgan Stanley analyst Adam Jonas, who reaffirmed an ‘Overweight’ rating and a $300 price target on the stock.
Antofagasta was the biggest faller on the FTSE 100 as the copper miner cut production guidance. The Chile-focused miner trimmed forecast 2026 copper output to between 625,000 and 655,000 metric tons from 650,000-700,000 tons prior. This was due to a shutdown at its Los Pelambres mine last month. ANTO shares slipped –5% and have dragged the rest of the blue chip basic resources stocks like Rio Tinto, Fresnillo, Endeavour, Anglo American and Glencore down the chute, all trading 2-4% weaker early doors to take the shine off the FTSE 100, which declined around –0.4% within the first hour of trade just as the DAX added around +0.3% and US futures looked higher. Note ex-divis account for 34pts of losses for the FTSE 100 today.
In the US, Cerebras, Cisco and Coherent were the main after-hours movers. Cisco shares fell –4% despite a big revenue beat. Coherent, an optoelectronic devices manufacturer, had its shares boosted by Lumentum’s earnings but pulled back after-hours following its blowout earnings update with revenues +34%. Cerebras tanked after-hours as its hardware sales slipped as it found fewer buyers for its wafer tech.
Reporting today is Applied Materials, the largest semiconductor wafer fabrication equipment manufacturer in the world.
