US Inflation Figures Spark Market Sentiment Cools Amid Rate Hike Expectations

US inflation figures released on Wednesday showed that prices rose slightly more than expected in July, causing market sentiment to cool. The dollar and US Treasury yields ticked higher as investors anticipated a potential interest rate hike by the Federal Reserve.

The Personal Consumption Expenditures (PCE) index, which is the Fed's preferred measure of inflation, came in at 3.7% year-over-year, exceeding forecasts of 3.6%. Core PCE, which strips out volatile food and energy prices, held steady at 3.3%, reinforcing concerns about sticky inflation.

Despite this, rate hike expectations barely budged, with traders still pricing in a 60-40 probability of a rise next month. The recent signals from Treasury Secretary Scott Bessent to lower bond yields at the long end of the curve may have contributed to the muted reaction.

Nvidia's quarterly results, released after market close, beat estimates but saw its share price drop due to a slight decrease in expected gross margins. Investors are now focused on Fed Chair Kevin Warsh's keynote address at Jackson Hole later this week for clarity on the Fed's inflation strategy.