U.S. consumer inflation continued to ease, reducing concerns over a September Fed hike. Lower Treasury yields supported valuations, lifting high-valuation tech and growth stocks, including the Philadelphia Semiconductor Index and Nasdaq. In Asia, sustained AI and semiconductor buying drove strong gains in Japan. Geopolitical risks remain: Pakistan’s defense minister said U.S.-Iran talks over the Strait of Hormuz were progressing positively, but Iran said restrictions remain. Only six ships per day on average have passed through the strait since August, highlighting continued uncertainty.
U.S. CPI continued to cool, pushing back Fed hike expectations and driving Treasury yields lower, with the curve steepening over the past week. Nvidia plans to monetize its computing assets and raise over US$500bn with six major Wall Street asset managers. U.S. IG bond issuance reached about US$51.2bn over the week, briefly widening credit spreads. However, lower rates and improving risk appetite supported an IG bond rebound, alongside gains in HY and EM bonds.
Lower energy prices drove July CPI inflation down to 3.4% YoY from 3.5%, while CPI rose just 0.1% MoM, easing expectations for a September Fed hike. Core CPI slowed to 2.5% YoY and 0.2% MoM, signaling moderating inflation. However, healthcare, education and communication services prices remained firm. With U.S.-Iran uncertainty and oil prices rising gradually since August, inflation swaps show limited declines in expectations beyond one year, supporting a hawkish stance among some Fed officials.
Applied Materials (AMAT) reported strong FY3Q26 results, with net revenue of US$9.12bn, up 25% YoY and above expectations and guidance. Adjusted EPS of US$3.50 also beat consensus of US$3.42. Management attributed strong demand to AI infrastructure, advanced foundry and logic, DRAM, advanced packaging, and services. Customers have also raised capacity plans, with management expecting another strong growth year in 2027.
The U.S. Treasury’s quarterly refunding plan indicates issuance will remain stable over the coming quarters despite rising funding needs. Although the financing gap is expected to widen from US$525bn in FY2026 to US$775bn in FY2027, the Treasury may increase short-term issuance while keeping 20Y+ supply unchanged. Buybacks also remain concentrated in 10Y+ maturities, helping limit supply-demand imbalances in the Treasury market.
Bond ETF flows from January to July show two clear trends. First, amid U.S.-Iran tensions, higher oil prices, and Fed hike expectations, investors favored short- to medium-duration bonds to reduce rate risk. Second, despite periodic spread widening, credit spreads remain near historical lows, driving flows toward BBB or higher IG bonds. HY inflows have lagged last year, reflecting continued U.S. policy uncertainty and investor preference for high-quality income and stable cash flow.
