US Inflation Rate Slows Down, Reduces Fed Hike Expectations

The US inflation rate cooled down in July to 3.4% year-over-year, matching expectations and easing core CPI to 2.5%. This development has significantly reduced expectations for a September Federal Reserve interest-rate hike, now priced at around 35%, down from 55% last week.

As a result, US stocks have reached fresh highs, with the S&P 500 hitting a new record close of over 7,800 and technology stocks leading the rally. Gold also broke above $4,400 due to softer inflation and lower Fed hike expectations.

The outlook for next week remains positive as long as inflation continues to cool and AI-related earnings remain strong. However, Asian equities have rebounded strongly after a sharp decline in late July and early August, suggesting that valuations could be stretched.