Major indexes opened higher, with the Dow Jones Industrial Average rising 0.27%, the S&P 500 gaining 0.45%, and the Nasdaq Composite climbing 0.88%. July's U.S. Consumer Price Index (CPI) matched market expectations, showing a monthly increase of 0.1% and annual inflation of 3.4%. The core CPI, which excludes food and energy, rose 0.2% month-over-month and 2.5% year-over-year. Both headline and core inflation rates saw slight declines from June levels.
The Federal Reserve has been closely monitoring the impact of inflation pressures on American households, with three members voting against a rate hike during the last policy meeting. Market concerns persist as U.S. crude oil prices surpassed $83 per barrel on Wednesday, driven by cooling expectations for a reopening of the Strait of Hormuz shipping lane. However, following the release of this inflation data, markets have increased the probability that the Fed will keep interest rates unchanged next month. According to the CME FedWatch Tool, current pricing in federal funds futures indicates roughly a 58% chance that the Fed will maintain its benchmark rate at the 3.50%–3.75% range, up from just over 45% a week ago.
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Alan Zenter, chief economic strategist at Morgan Stanley Wealth Management, commented, "The inflation data is in line with expectations, reinforcing the 'no rate hike needed' consensus that emerged after last week's jobs report. A new round of inflation data will be released before the September FOMC meeting, so the situation remains uncertain. However, unless subsequent data significantly deteriorates, the Fed is likely to hold rates steady next month."
Why just 10 ASX 200 shares?
Meanwhile, strong quarterly reports and guidance from CoreWeave, Inc. and SUPER MICRO COMPUTER INC have reassured investors that demand for AI computing infrastructure remains robust. Cloud computing leader CoreWeave, Inc. surged 18% after reporting a second-quarter adjusted operating profit margin of 5%, which exceeded expectations, along with revenues that doubled year-over-year. SUPER MICRO COMPUTER INC gained 9% after posting strong first-quarter earnings and revenue guidance. Other AI supply chain stocks also moved higher, with Dell Technologies and Micron Technology each rising more than 2%, and Cisco Systems advancing over 1%. Shares of the Dutch-listed emerging cloud computing firm Nebius rose more than 8%.
Strong earnings growth and a stable economic environment should help the S&P 500 offset the challenges posed by higher interest rates and inflation. Strategists at RBC noted that the firm maintains a positive outlook on the S&P 500 over the next year. The recent wave of earnings reports has been well-received by investors, who are keen to see if artificial intelligence infrastructure companies can achieve the profitability needed to sustain the rally in technology stocks. Florian Ielpo, macro head at Lombard Odier Investment Managers, said, "The results from CoreWeave, Inc. and Super Micro Computer Inc provide further evidence that AI infrastructure demand remains strong." However, he cautioned that strong earnings do not automatically translate into higher valuations, especially in an environment where financing costs remain elevated.
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