Markets Push Higher as Softer Inflation Reduces Rate-Hike Fears, While AI and Oil Remain in Focus

Markets

Global markets entered Friday with a positive tone after fresh U.S. inflation data reinforced expectations that the Federal Reserve may have less reason to raise interest rates in September. Asian equities were broadly stronger, with Japan's Nikkei and South Korea's Kospi among the best performers. Wall Street also remained close to record highs after the S&P 500 reached a new record on Thursday, supported by technology and AI-related stocks. The combination of moderating inflation, falling oil prices and strong corporate earnings continues to support risk appetite. However, investors remain cautious about geopolitical tensions and elevated long-term bond yields.

Stocks & Earnings

Technology and artificial intelligence remain at the center of the equity rally. Semiconductor and AI infrastructure companies continue to attract strong investor demand as corporate earnings reinforce expectations of sustained spending on data centers, advanced chips and cloud infrastructure. The recent strength in companies linked to AI has helped push the broader market toward record levels. At the same time, investors are becoming increasingly selective, focusing on whether the enormous capital expenditure associated with AI can translate into sustainable revenue growth, margins and cash flow. Software and semiconductor stocks have also benefited from strong company-specific developments, helping maintain technology's leadership within the broader market.

Business & Macro

The latest U.S. inflation data continues to provide support for financial markets. July producer-price inflation came in below expectations, with headline PPI remaining unchanged on a monthly basis and annual growth slowing to 4.7%. The softer reading reduced expectations of an imminent Federal Reserve rate hike. Markets are now assigning a significantly lower probability to a September increase than they were earlier in the week. Treasury yields remain elevated, however, with long-term borrowing costs still close to their highest levels in decades. This reflects continued concerns surrounding inflation, government borrowing and the U.S. fiscal outlook.

Crypto & ETFs

Cryptocurrency markets remained relatively stable as the improvement in interest-rate expectations provided some support for risk assets. Bitcoin continued to trade close to recent levels, while Ethereum and other major digital assets remained sensitive to movements in technology stocks, Treasury yields and global liquidity. Institutional investors continue to favor AI, semiconductor and technology-focused ETFs, reinforcing artificial intelligence as the dominant structural investment theme in equities. For digital assets, the main catalyst remains monetary policy. A continued moderation in inflation could support liquidity expectations, while renewed geopolitical or inflationary pressure could quickly increase volatility.

Geopolitics

The Middle East remains the biggest geopolitical risk for global markets. Tensions surrounding Iran and the Strait of Hormuz continue to influence oil prices and global inflation expectations. Brent crude has stabilized around the high-$80s per barrel after recent volatility. Oil remains on course for a strong weekly gain, meaning energy markets are still vulnerable to any escalation that could disrupt supplies or shipping through the region. The situation is particularly important for central banks because another sustained rise in energy prices could feed into inflation and make it more difficult for policymakers to consider lower interest rates.

What to Watch Today

Investors will closely monitor several important developments today, including U.S. retail sales and consumer-confidence data, Treasury yields and expectations for Federal Reserve policy, AI and semiconductor stocks following their recent record-setting performance, oil prices and developments surrounding the Strait of Hormuz, the U.S. dollar and Japanese yen particularly amid speculation over Bank of Japan policy, Bitcoin and Ethereum performance alongside institutional ETF flows, and any new developments involving Iran and regional energy supplies.

Bottom Line

Markets are ending the week with a constructive tone as softer inflation data reduces fears of an imminent Federal Reserve rate hike and gives technology stocks additional room to extend their rally. AI remains the strongest structural theme in equities, supported by powerful corporate investment and earnings growth. The main risk remains the same: geopolitics and energy prices. If oil remains contained, investors could continue focusing on falling inflation and resilient corporate earnings. But any renewed disruption around the Strait of Hormuz could quickly reverse the recent improvement in inflation expectations and put pressure on both equities and bonds.