James Brodie
Head of Learning & Development, Flux
Fed Unlikely to Hike Rates, AI Buildout Props Up the US, SpaceX
US CPI in line, easing rate expectations steepen the curve, while gold rallies and AI investment continues to drive growth.
As expected inflation data leaves the Fed unlikely to hike rates this year, 2 year yields fall, the curve 2yr/10yr continues to steepen to 50 basis points, equities barely react while gold & precious metals continue their new bull run.
The July US CPI inflation numbers landed firmly in line with consensus forecasts across the board: Headline CPI of 3.4% YoY (0.1% MoM); andCore CPI of 2.5% YoY (0.2% MoM).
The US auctioned off 10-year bonds yesterday at the highest yields since 2007. The yield move has been driven by real yields (adjusted for inflation), which are hovering near the highest levels since 2008.
That is a big U.S. budget deficit in July. (Chart 1, Macrobond).
“Virtually nothing matters more to markets at present than the AI buildout. It’s such a sudden and massive stimulus for the US that it has shifted macroeconomic data.” Columbia Business School’s Stijn Van Nieuwerburgh argues that without it, the US would be in recession. He estimates AI infrastructure investment at roughly 2.8% of GDP - larger than the railroad boom - and it’s projected to keep rising (Chart 2 , Bloomberg)
SpaceX stock, extends gains to over +10% on the day, now up nearly +40% over the last five trading days.
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