Cooling Inflation Data Fails to Change the True Pressure on Global Assets
On July 31, the U.S. June PCE month-on-month rate unexpectedly turned negative, with core PCE rising only 0.1%, and GDP annualized growth also falling short of market expectations. This seemingly provides evidence for cooling inflation and an economic slowdown. However, when dissecting the GDP structure, private final demand, consumption, and investments related to AI remain strong, indicating that economic momentum has not significantly deteriorated. This explains why the market has not fully bet on easing due to the weakening data, but rather focused on policy credibility and global funding costs.
More notably, the Japanese government appears to be coordinating with the U.S. for currency intervention, while South Korea has also reported dollar-selling interventions. Although the Bank of Japan has kept interest rates unchanged, some members advocate for rate hikes. Similarly, three members of the Bank of England support rate increases, indicating that central banks worldwide remain cautious or even hawkish in their monetary policy in the face of inflation and currency pressures. This suggests that the global liquidity environment has not fundamentally changed due to the U.S. monthly inflation data cooling, but rather continues to tighten financial conditions in various forms.
On the other hand, the fundamentals of the technology sector remain robust. AWS revenues exceeded expectations, Oracle continues to expand its collaboration with Google, and OpenAI has once again lowered model prices. AI competition has gradually shifted from model capabilities to cost efficiency and enterprise application penetration. In contrast, Apple's performance in the Chinese market and its services business appears weak, reflecting a divergence in end-consumer demand. The valuation differences between beneficiaries of future AI infrastructure and hardware manufacturers may further widen.
Looking ahead, what the market truly needs to observe is not just whether the U.S. will cut or raise interest rates, but whether major global central banks will simultaneously maintain a tight financial environment through interest rates, currency interventions, and policy communication. If expectations for rate hikes in Japan continue to rise and Asian central banks persist in intervening in the currency market, the flow of global arbitrage funds and dollar liquidity may continue to adjust. Meanwhile, AI investments and corporate profits will remain crucial fundamentals supporting risk assets. The tug-of-war between these two forces is expected to keep market volatility in the third quarter at relatively high levels.
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