US equities rallied on Tuesday, with the S&P 500 and Nasdaq setting fresh record closes after softer-than-expected inflation data reinforced expectations of a Federal Reserve rate cut next month. US July’s CPI showed headline prices rising at a 2.7% annual pace, a notch below forecasts, while core CPI climbed 3.1%, marginally above estimates but still seen as consistent with moderating price pressures. The report reassured investors concerned that President Trump’s wide-reaching tariff measures could stoke inflation, instead prompting traders to increase wagers on multiple cuts before year-end. The Dow also advanced sharply, supported by gains in small caps and airline stocks, while sentiment was further lifted by an extended 90-day pause on higher US–China tariffs.

Key Takeaways:

  • Dow Climbs as Small Caps Lead Gains: The Dow Jones Industrial Average rose 483.52 points, or 1.10%, to 44,458.61, led by small caps with the Russell 2000 up nearly triple the S&P 500’s percentage gain. Gains were driven by stronger Fed rate cut expectations after softer July inflation data and an extended US–China tariff truce.
  • S&P 500 Sets Fresh Record: The S&P 500 advanced 1.13% to a record 6,445.76, supported by broad-based gains. Chipmakers including NXP Semiconductors and Texas Instruments rose over 5%, while airlines surged on lower oil prices.
  • Nasdaq Extends Winning Streak: The Nasdaq Composite gained 1.39% to 21,681.90 for another record close. Meta led the Magnificent Seven with a 3.15% rise, while Nvidia climbed despite reports of potential Chinese chip purchase restrictions.
  • Europe Markets Gain Despite Weak German Data: European equities ended mostly higher after softer US inflation data provided a positive lead for global markets, outweighing disappointing German and Eurozone sentiment figures. The Stoxx 600 closed 0.24% higher, with the FTSE 100 up 0.20% at 9,147.81, the CAC 40 rising 0.79%, and Milan’s FTSE MIB advancing 0.85%, while the DAX slipped 0.13% to 24,024.78. UK labour market data showed employment rising by a stronger-than-expected 238,000 in the three months to June, though job vacancies fell for a 37th straight quarter. Wage growth excluding bonuses eased slightly to 4.8%, while consumer spending rose 1.4% in July, aided by early-month warm weather before cooling later in the month. In Germany, the ZEW Economic Sentiment Index fell sharply to 34.7 in August from 52.7 in July, missing forecasts, while the Current Situation Index dropped to -68.6. The Eurozone sentiment reading also weakened to 25.1 from 36.1, underscoring lingering growth concerns despite better inflation trends abroad.
  • Asia-Pacific Markets Mixed as Japan Hits Record: Asia markets were mixed, with Japan’s Nikkei 225 jumping 2.15% to a record 42,718 and the Topix gaining 1.39% to 3,066, both lifted by tech strength and renewed optimism over US–China trade negotiations following a 90-day tariff truce extension. Australia’s S&P/ASX 200 rose 0.41% to 8,880.80 after the RBA cut rates by 25 basis points, a move aimed at supporting growth amid global trade uncertainty. Hong Kong’s Hang Seng gained 0.25% to 24,970, rebounding from early losses, while China’s CSI 300 rose 0.6% as July vehicle sales accelerated to 14.7% year on year from June’s 13.8%. South Korea’s Kospi fell 0.53% after early-session gains, while India’s headline inflation dropped to 1.6% year on year, its lowest in nearly 15 years and well below the RBI’s target band, marking the sixth straight reading below the central bank’s 4% median target.
  • Oil Prices Ease on Tariff Truce Extension: Brent crude fell 0.77% to $66.12 and WTI slid 1.24% to $63.17 after the US–China tariff deadline was extended to 10 November. OPEC raised its 2026 global oil demand forecast by 100,000 bpd to 1.38 million bpd and trimmed projected non-OPEC+ supply growth, signalling a tighter market outlook.
  • US Consumer Prices Rise Modestly: July CPI increased 0.2% month on month and 2.7% year on year, slightly below the 2.8% forecast. Core CPI rose 0.3% on the month and 3.1% on the year, the largest gain since January, edging above the 3% estimate. Tariff-related cost pressures in certain goods categories persisted, but the softer headline reading supported risk sentiment, with the dollar index down 0.43%.
  • Treasury Yields Diverge as Cut Odds Jump: The 10-year yield rose 2 basis points to 4.289% and the 30-year climbed 3 basis points to 4.875%, while the 2-year eased to 3.731%. Fed funds futures priced a 94% probability of a September rate cut, up from 85% before the CPI release, with additional cuts expected in October and December.

FX Today:

  • EUR/USD Edges Higher as Buyers Target a Clean Break Above 1.1700: EUR/USD closed at 1.1674, up 0.51%, after trading between 1.1599 and 1.1697. The pair extended its rebound from early August’s pullback, maintaining a position above 1.1615 and well clear of the 100-day SMA at 1.1481. Price action remains anchored within the broader uptrend that began in February, with consolidation now centred just below the 1.1700 handle. A recent basing structure above 1.1615, combined with higher swing lows since mid-July, underscores persistent buying interest. A break above 1.1700 would target the late-July peak near 1.1840, while initial support is at 1.1615, with a move below this opening the door to 1.1481. The near-term bias stays positive while above 1.1615, with upside continuation favoured if resistance at 1.1700 is breached.
  • GBP/USD Pushes Toward 1.3520 as Recovery Broadens Above Key Averages: GBP/USD settled at 1.3494, up 0.47%, trading between 1.3421 and 1.3528. The move added to last week’s rebound from the early August sell-off, with the pair now approaching the 50-day SMA at 1.3520, a critical resistance level. The market structure remains bullish above the 100-day SMA at 1.3377 and the 200-day SMA at 1.2999, with higher lows since the early-month trough at 1.3220 signalling sustained buying momentum. Clearing 1.3520 on a daily close would likely open the path to the late-July swing high around 1.3800, while failure at this level could see consolidation between 1.3377 and 1.3520. Support rests first at 1.3377, then at 1.3220, where strong demand previously emerged.
  • USD/CHF Softens Near 0.8050 as Sellers Reassert Control: USD/CHF ended the day at 0.8065, down 0.72%, after ranging between 0.8062 and 0.8126. Early gains faded, with selling pressure returning to push the pair toward the lower end of its session range. Price remains capped beneath both the 50-day SMA at 0.8051 and the 100-day SMA at 0.8201, reflecting the dominant downtrend in place since April’s breakdown. Attempts to sustain rebounds have repeatedly failed near the 100-day SMA, and today’s reversal suggests that the recovery from the July low at 0.7890 is already losing traction. A break under 0.8050 would target 0.8000 and then 0.7890, while only a daily close above 0.8201 would signal a shift in the near-term bias.
  • USD/JPY Holds the 147s, Momentum Capped Below 148.50: USD/JPY closed at 147.76, down 0.26%, with the day’s range spanning 147.58 to 148.52. An early push higher faded as sellers capped gains below resistance at 148.50, keeping price beneath the mid-July peak at 151.00. The pair remains above the 100-day SMA at 145.58, while the 200-day SMA at 149.32 forms part of a key resistance zone near 150.00. Since rebounding from 141.65 in early July, higher lows have been established, with 147.00 emerging as important near-term support. A decisive break above 148.50 would target 150.00–151.00, while a drop under 147.00 risks a move toward 145.58. The bias is cautiously bullish while above 145.58.
  • Gold Steadies Above $3,340 with $3,400 Still the Barrier: Gold settled at $3,347, up 0.16%, trading between $3,331 and $3,359. The metal found buying interest near the session low, holding above the 50-day SMA at $3,349 and well clear of the 100-day SMA at $3,286. Price remains in a broader uptrend since February, with recent action contained between resistance just under $3,400 and support around $3,330. Higher swing lows above $3,330 indicate demand on dips, but repeated rejections near $3,400 point to fading breakout momentum. A close above $3,400 would target the July high near $3,439, while a drop below $3,330 would shift focus to $3,286. The bias remains constructive while above $3,286.

Market Movers:

  • Magnificent Seven All Close Higher as Meta Leads Gains: Meta rose 3.15% to top the group, while Nvidia added 0.57% despite reports that Chinese authorities may discourage domestic firms from purchasing its AI chips even if US rules permit sales.
  • Airlines Surge on Lower Oil Prices While Spirit Plunges: United Airlines jumped more than 10%, American Airlines gained nearly 12%, and Delta Air Lines rose 9%, but Spirit Aviation slumped 41% after its subsidiary Spirit Airlines issued a going-concern warning.
  • Hanesbrands Soars on Acquisition Talk: Shares rallied 28% after the Financial Times reported that Gildan Activewear is nearing a deal to buy the company for up to $5 billion.
  • Paramount Skydance Advances on Positive Broker Coverage: The stock gained over 8% after Guggenheim initiated coverage with a buy rating and a $13 price target, citing optimism for the merged Paramount Global and Skydance Media business.
  • Starbucks Gains on Upgrade While Cardinal Health Slides: Starbucks rose 1.8% after Baird upgraded the stock to outperform from neutral, while Cardinal Health fell 7.2%.

US markets powered to fresh highs on Tuesday as cooler-than-expected inflation data strengthened expectations for a September Federal Reserve rate cut, while the extension of the US–China tariff truce supported global risk appetite. Gains were broad-based, with small caps, technology, and airlines leading the advance, and sentiment further lifted by the prospect of additional monetary easing before year-end. European markets posted moderate gains despite weak sentiment data, and Asia-Pacific trading was mixed, highlighted by record closes in Japan. Traders are now firmly focused on Thursday’s producer price index release while the Fed’s Jackson Hole is gathering later this month.