Weaker Payrolls Report Reduces Interest Rate Hike Likelihood

The US markets ended last week on a positive note despite concerns of an imminent interest rate hike. The non-farm payrolls report showed a much weaker than expected reading, with only 23,000 jobs added in July, compared to the consensus estimate of 80,000. This has reduced the likelihood of an interest rate hike in September from almost 70% to around 45%. The Federal Reserve's dual mandate includes both employment and inflation, making this a crucial factor in their decision.

The next test of the Fed's resolve will come on Wednesday with the release of the Consumer Price Index, which is expected to ease to 3.4% from 3.5% in June. However, this is still well above the central bank's target of 2%. The week ahead will also see the release of retail sales data, which could provide further clues on the Fed's outlook.

The stellar quarterly reporting season has contributed to the current optimism, with 90% of the S&P 500 having released their figures and an estimated 50% spike in overall profit growth. The tech sector has also seen a recovery, with the Nasdaq gaining 5.2% last week and the iShares Semiconductor ETF rising by over 7%. This has led to some concerns that stocks may be becoming overpriced.