Today
Equity futures edged higher this morning, led by gains in semiconductor stocks after ASML raised its sales outlook for the second time this year, boosting optimism across the AI supply chain (more in company news). Despite the renewed optimism around AI, investors remain somewhat cautious this morning after renewed U.S. military strikes against Iran, which pushed oil prices higher and kept geopolitical risks in focus. Markets are also drawing support from yesterday’s softer-than-expected inflation report out of the U.S., which reduced expectations of a Fed rate hike later this month. Investors are now turning their attention to the latest U.S. inflation data which showed producer inflation remaining relatively contained in June. Core PPI rose 4.7% year-over-year and 0.2% month-over-month, a slower pace than expected despite geopolitical tensions, suggesting that higher energy prices have not yet translated into broad-based inflation pressures. Headline producer prices increased 5.5% from a year earlier, while a separate survey showed New York manufacturing activity improved in July as new orders, shipments, and employment strengthened.
China needs a boost. China’s economy grew 4.3% year-over-year in Q2, below both economists’ expectations and the government’s 4.5%–5.0% target range. This marks its weakest growth in more than three years and reinforces expectations that China will need additional policy support to stabilize growth in the second half of the year. The slowdown was driven by a contraction in fixed-asset investment, while consumer spending remained mixed despite stronger retail sales and resilient industrial production. Although China has technically exited economy-wide deflation, underlying price pressures remain weak, suggesting domestic demand is still fragile. The data increase pressure on policymakers to accelerate fiscal stimulus and infrastructure spending at the upcoming Politburo meeting, with several major banks lowering their 2026 GDP forecasts to 4.5%–4.6%.
Fed Chair Kevin Warsh reiterated the Fed’s commitment to restore price stability as he faced Congress yesterday, stressing that policymakers will not tolerate high inflation. While acknowledging the encouraging June CPI data, which came in softer-than-expected, Warsh cautioned against drawing conclusions from a single month’s figures, emphasizing that the Fed still has work to and will remain data dependent. Warsh described the U.S. economy and labour market as resilient, highlighted the uncertain economic implications of the AI investment boom, and pledged to make policy decisions independently of political pressure. Plans for a review of the Fed’s policy framework, communications, and operating practices, were also outlined. While markets still expect at least one Fed rate hike this year, some strategists now expect the Fed to remain on hold through the rest of 2026, citing a stable macro backdrop, moderating inflation, and an economy that remains resilient without overheating.
Japan’s rising government bond yields reflect a healthy normalization of monetary policy rather than the beginning of a fiscal crisis, despite Prime Minister Takaichi’s ambitious ¥370 trillion investment plan. Japan’s significant private-sector savings, large current account surplus, and government bond holdings by the Bank of Japan and other public institutions provide enough financing for higher borrowing needs. With inflation, wage growth, and economic capacity all strengthening after decades of deflation, experts now expect the Bank of Japan to continue raising interest rates, leaving strategists to underweight Japanese government bonds while turning positive on the yen. A combination of easier fiscal policy, tighter monetary policy, narrowing interest-rate differentials, and increased currency hedging by Japanese investors is also expected to support further appreciation of the undervalued yen.
It was a big day for Wall Street’s largest banks yesterday after posting record equity trading revenues in Q2. This came amid heightened market volatility, the AI investment boom, and constant portfolio repositioning by clients, which in turn drove trading activity. JPMorgan and Goldman Sachs each reported record results from their equities businesses, while strong capital markets, including IPOs and mergers, further supported investment banking revenues. Despite concerns over war, inflation, and the broader economic outlook, executives noted that healthy consumer conditions and resilient markets continue to support activity, although they cautioned that the current pace of trading isn’t likely to be sustained. Rising expenses tied to technology investments and employee compensation remain a headwind, highlighting that stronger revenues may not fully translate into higher profits going forward.
Too good to be true? AI is making it difficult for employers to separate strong candidates from those relying on AI tools during the hiring process. Nearly half of job seekers now use AI to assist with applications, with some admitting to using chatbots to complete assessments or provide real-time interview responses. Companies are now reporting that this has led to costly hiring mistakes when new employees cannot perform as expected. In response, many companies are redesigning recruitment processes by adding in-person interviews, live technical assessments, AI-free interview policies, and enhanced identity verification. Whether we like it or not, AI is becoming more embedded in the workplace. This has caused employers to shift their criteria from polished interview performance to evaluating candidates’ genuine skills and critical thinking.
Diversion: Safety First
