Market Drivers:

• U.S. Inflation: July CPI data released today came in slightly cooler than anticipated, with the headline figure holding steady at 2.7% year-over-year. However, core inflation, which excludes volatile food and energy, accelerated to 3.1%, its highest level in five months.
• Central Banks & Policy: The mixed inflation data provides a complex backdrop for the Federal Reserve. While the cooler headline number might give a hint of relief, the persistent rise in core inflation complicates the narrative for future rate-cut expectations.
• Global Macroeconomics: The global economic landscape continues to be shaped by trade policy and geopolitical tensions. Tariff trauma is easing, but a number of key deals are still being negotiated.  While business confidence remains fragile, many major markets are still expected to see positive growth this year, with a significant shift in trade flows due to evolving tariff policies.
• Corporate Earnings: The current earnings season continues to offer a mixed picture, with several key companies reporting this week. Highlights include a range of companies across technology, healthcare, and consumer sectors, providing insight into consumer behavior and corporate resilience in a high-cost environment.

A Closer Look at the Markets

The global capital markets have navigated a complex and at times contradictory environment over the past week. A primary focus for investors was today's release of the July Consumer Price Index (CPI) data, which painted a nuanced picture of the inflationary pressures in the U.S. economy.

Inflationary Pressures & the Fed's Dilemma

This morning's CPI report from the Bureau of Labor Statistics showed that headline inflation, as measured by the CPI for All Urban Consumers (CPI-U), remained at 2.7% on a year-over-year basis¹. This was slightly below the 2.8% forecast by economists. The primary driver of the monthly increase was the shelter index, which rose by 0.2% in July.

However, the more concerning development was the acceleration of core inflation, which strips out the more volatile food and energy components. Core CPI rose to 3.1% over the last 12 months¹, its highest reading in five months and exceeding the consensus forecast. This acceleration was driven by increases in services, including medical care, transportation services, and household furnishings.

This data presents a significant challenge for the Federal Reserve. On one hand, the stable headline inflation rate, coupled with a notable decline in gasoline prices, might suggest that some inflationary pressures are easing. On the other hand, the persistent and strengthening core inflation, which is often seen as a better indicator of underlying price trends, suggests that the fight against inflation is far from over. This complicates the Fed's path and raises questions about the timing and magnitude of any future rate cuts. The market is now grappling with the possibility that the Fed may need to maintain a restrictive stance for longer than previously anticipated, potentially impacting economic growth expectations.

Global Economic Currents

Beyond the U.S., the global macroeconomic narrative is still largely defined by geopolitical tensions and shifting trade policies. The impact of recent tariff increases is becoming more evident, as they act as a tax on both businesses and consumers, squeezing purchasing power and raising business costs. This is contributing to a cooling of global industry, a trend that is expected to continue into the second half of the year.

Conversely, emerging market economies are showing a degree of resilience. Despite a projected slowdown in growth, many emerging market central banks are expected to continue cutting rates, diverging from the more cautious stance of the Fed. This, coupled with fading "U.S. exceptionalism," has led some analysts to forecast a weaker U.S. dollar and a potential outperformance of emerging market currencies.

Corporate Earnings & Market Performance

The second-quarter earnings season is in its final stages, with several notable companies reporting results this week. The reports have provided a mosaic of corporate health, with some companies demonstrating strong operational resilience while others highlight the ongoing challenges of a high-cost environment.

• DoorDash (DASH) and Airbnb (ABNB) both beat earnings per share forecasts², indicating continued strength in consumer spending on internet and leisure services despite inflationary pressures.
• McKesson Corp (MCK) and Fortinet (FTNT) also reported better-than-expected results, suggesting robust demand in the healthcare and cybersecurity sectors, respectively².
• Circle (CRCL) impressed with its first earnings release since going public, posting higher revenue and income driven by strong demand for its USDC stablecoin and growing subscription services. The stock soared over fivefold since its IPO³.

The broader market has responded to this mixed data with some volatility. Equities have been a bit choppy as investors digest the conflicting signals from the CPI report and corporate results. The bond market is also adjusting, with yields on U.S. Treasuries reflecting the ongoing debate over the Fed's next moves.  With the equity markets floating at all time highs, we’ll be watching.

AI Models on the March

A significant development occurred this past week as OpenAI officially released its most advanced AI model yet, ChatGPT 5. The new model, which replaces all previous versions, is being hailed for its enhanced capabilities in areas like writing, coding, and health-related knowledge⁴. CEO Sam Altman likened the model's proficiency to that of a "legitimate PhD-level expert," and the company notes that it is significantly less prone to factual errors or "hallucinations" than its predecessors. This launch underscores the rapid pace of innovation in the AI sector and its potential to reshape various industries.  Meanwhile, xAI’s Grok, which lives on the X social media platform, was briefly suspended yesterday for unspecified reasons⁵.

Looking ahead, the focus will remain on incoming economic data and any further commentary from central bankers. The market will be closely watching for signs of whether the recent rise in core inflation is a blip or a more entrenched trend, as this will be a key determinant of monetary policy and, by extension, market direction for the remainder of the year.

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Footnotes

1. U.S. Bureau of Labor Statistics, "Consumer Price Index – July 2025," news release, August 12, 2025,  https://www.bls.gov/news.release/cpi.nr0.html.

2. FactSet, "Second-Quarter 2025 Earnings Tracker," August 11, 2025, https://www.factset.com/earnings-insight/earnings-tracker.

3. Yahoo Finance, CoreWeave, Circle slide as investor scrutinize post-IPO results, August 12, 2025, https://finance.yahoo.com/news/live/earnings-live-coreweave-circle-slide-as-investors-scrutinize-post-ipo-results-cava-stock-plunges-203511784.html

4. OpenAI, "Introducing GPT-5," news release, August 7, 2025,  https://openai.com/blog/introducing-gpt5.

5. Newsweek, Elon Musk Reacts as Grok Account Gets Temporarily Suspended, August 11, 2005, https://www.newsweek.com/elon-musk-reacts-grok-account-temporarily-suspended-2112023.

Researched and compiled with the assistance of Gemini 2.5.