It has been a week of holding patterns to start with as traders put inflation risks in balance with geopolitics. Oil’s move put some pressure on things; the Dow gave back 72 points (0.2%), the Nasdaq was down 0.3% and the S&P 500 was even as investors bided their time for Wednesday’s CPI and some clarity on the situation in the Strait of Hormuz.
Inflation test meets energy shock
The outlook on inflation is still the market’s swing factor. Should Wednesday’s CPI run hot, it will put to the test the notion that the Federal Reserve has leeway to stand pat. Crude prices have been climbing, which has made the Fed’s calculus more difficult and complicated the disinflation story.
By 9:44 a.m. ET, US West Texas Intermediate was up 2.4% at $80.03 a barrel and Brent had put in a 2.4% gain to $85.53. For equities hovering near records, that kind of energy action is a convenient way to measure risk appetite.
Fed path and probabilities
After the nonfarm payrolls came in soft in July, there were bets the Fed would hold off on raising rates. Market pricing now puts the odds of a September hike at just under 46%, a drop from 67% last week. But the CPI on Wednesday can change all that in short order.
Hormuz uncertainty restrains risk-taking
There is an overhang from the conflict in West Asia. Iran has indicated it is not far from an accord with Oman to open up the Strait of Hormuz, but Tehran will have none of direct talks with Washington until its conditions are satisfied, so no one knows the timeline.
Iran’s foreign minister said as much, stating there is ‘no possibility of restarting negotiations’ given what he calls US violations of a June memorandum for which they have not been made whole. Treasury Secretary Scott Bessent hinted at an imminent deal last week, but on Sunday President Donald Trump characterised the US position as only semi-negotiating and said he wanted Tehran to feel the economic pinch.
Tech sentiment tilts after Intel move
Intel has weighed on the tech leadership, turning lower on news of a capital raise. The chipmaker’s plan to put $15 billion of common stock on the table sent shares down 4%, making it a prime drag on the Nasdaq today.
You see the theme of this cycle in the offering: chip and infrastructure names putting up funds for long-term demand while the investor community weighs near-term dilution. With AI build-outs in full swing, that is the dynamic of the moment.
AI infrastructure earnings as spending gauge
We are due for a round of AI infrastructure reports from CoreWeave, Nebius, Cerebras Systems and Super Micro Computer. The numbers should tell us about the breadth of data centre expansion and the speed of spending, two things that have defined the tech multiple in 2024.
Last week’s momentum meets this week’s catalysts
Equities come into the week in good shape. The three major US indexes have put in their best week since April, the S&P 500 included a record close. Now that momentum is up against a couple of near-term catalysts for a possible reset.
What the markets are set to watch:
– Wednesday’s CPI as a check on disinflation
– Where oil’s advance leads in terms of inflation
– How Intel is affecting risk in tech
– A capex pulse from the AI infrastructure earnings
Why it matters now
The consequences are clear enough. An inflation surprise driven by energy will tighten financial conditions and leave rate policy in question. A mild CPI might well underpin last week’s rally and keep money flowing into tech, assuming capital raises don’t dampen the mood.
At present the Dow is in the red, the S&P 500 is flat and the Nasdaq is lower. Given the elevated oil and the unresolved state of affairs at Hormuz, the CPI on Wednesday holds outsized sway in determining where US stocks go from here.
