United States
Records were broken on Tuesday across US indexes as the July CPI report met expectations, reinforcing hopes that the Federal Reserve will cut rates next month. The Consumer Price Index (CPI) rose at an annual rate of 2.7%, while Core CPI increased by 3.1%.
The news pushed both the Nasdaq and S&P 500 to new highs. The Nasdaq gained 1.39% to close at 21,681, and the S&P 500 rose 1.13%—a 72-point advance—to finish at 6,445, with all eleven sectors in positive territory. The Dow added 483 points to close at 44,458. The rally was broad-based, with the small-cap Russell 2000 leading gains, up 2.99%, as investors saw it benefiting most from lower rates. However, the Russell remains 6.5% below its record close from November last year.
According to the CME’s Fed Watch tool, traders are now pricing in a 94% probability of a September rate cut, despite the CPI report showing a notable rise in services inflation, which tends to be sticky. Bond markets saw little change, with the 10-year yield ending flat at 4.28% and the 2-year yield falling 4 basis points to 3.73%. The US dollar weakened after the data, dropping 0.40% on the Bloomberg US Dollar Index.
Communication services was the best-performing sector. Meta led the advance, jumping 3.15% to a record high of US$790 after CEO Mark Zuckerberg announced that Threads had surpassed 400 million monthly active users. Alphabet (Google) gained 1.25% to US$ 204.16 following news that AI startup Perplexity had made a formal US$34.5 billion bid for the Chrome browser. The offer comes as Google faces US antitrust proceedings that could force the sale of certain assets. Analysts at Robert Baird & Co. suggested the bid “vastly underestimates the asset,” valuing Chrome at more than US$100 billion.
Financials also performed strongly, with major retail banks rallying on the lower-rates theme. Citigroup rose 3.72% and Wells Fargo advanced 2.44%, as a steeper yield curve would support earnings—banks typically borrow short-term and lend long-term.
Later this week, investors will turn their attention to the Producer Price Index (PPI) for further inflation signals and to August’s consumer sentiment figures for insight into household outlooks.
Europe
European markets traded cautiously higher on Tuesday, supported by the prospect of lower US interest rates but tempered by caution ahead of upcoming talks between the US and Russian presidents. The EuroStoxx 600 gained 0.21% to close at 547.89, with five sectors advancing, led by industrials. Technology was the weakest sector, down 1.82% on the pan-European index.
In the UK, the FTSE 100 added 0.20% to close at 9,114.7, while Germany’s DAX slipped 0.23%. Software stocks in Europe were under pressure, with Germany’s SAP falling 6.96% and the UK’s Sage Group down 4.73%, amid concerns that artificial intelligence could present a significant competitive threat to these companies in the future.
Defence stocks rebounded after US President Trump sought to temper expectations ahead of his meeting with the Russian president, describing it as a “feel-out meeting.” Mining shares also advanced, buoyed by continued strength in commodity prices, prompting broad-based buying in the sector.
Bond yields moved higher, with Germany’s 10-year yield rising 4 basis points to 2.74% and the UK’s 10-year yield up 6 basis points to 4.62%. Longer-dated 30-year bonds also saw yields climb, with Germany’s reaching 3.29%—its highest level since 2011. The sustained move higher in long-term yields reflects concerns over rising borrowing requirements and the fiscal policies of European nations, which suggest investors will demand a higher risk premium to hold long-dated debt. The steepening of yield curves in the US also contributed to today’s move.
Australia
The Reserve Bank of Australia (RBA) cut its benchmark interest rate to 3.60% on Tuesday. While the move was widely anticipated, it still prompted a wave of buying in equities, pushing the ASX200 to a record close of 8,880.8, up 0.41% (+36 points). Eight of the index’s sectors finished higher, led by financials and consumer discretionary.
The RBA’s decision was unanimous. Alongside the rate cut, the board lowered its GDP growth forecast and projected inflation to remain near the midpoint of its 2–3% target range. The outlook assumed the possibility of a couple more rate cuts ahead, though Governor Bullock stressed in the post-meeting press conference that any further adjustments would be data dependent.
In other economic news, the NAB Business Confidence Index rose, with the strongest sentiment recorded in the construction and services sectors. Bond yields were little changed, with the 10-year holding at 4.24% and the 2-year dipping by one basis point to 3.33%. The Australian dollar eased slightly, ending the Sydney session at 0.6504.
Financials outperformed, with all four major banks finishing higher. ANZ led the gains, rising 2.21%, followed by Westpac, up 0.93% to $34.63. CBA, which reports earnings today, edged 0.11% higher to close at $178.80.
The consumer discretionary sector also advanced, supported by expectations that the rate cut would leave households with more disposable income. JB Hi-Fi gained 5.58% to $113.85, recovering some of the prior day’s post-earnings losses as bargain hunters and dividend investors saw value in the dip.
In commodities, iron ore prices extended their rally in Asian trade. Reports of Chinese government orders to temporarily shut certain steel mills ahead of a military parade—prompting mills to front-load ore purchases—helped lift prices. This benefited miners, with BHP gaining 0.95% and Rio Tinto up 1.24%.
Technology stocks were mostly weaker, with Xero the worst performer among the majors, down 2.18%. An exception was Life360, which surged 7.80% to $40.77 after delivering record revenue growth in its half-year results.
In overnight trading, ASX200 futures rose 14 points, or 0.16%, indicating a positive start to the day. The Australian dollar also gained during the evening session, benefiting from a weaker US dollar, and opens the day at 0.6529.
Commodities
Oil extended its decline, with no fresh catalysts to counter the oversupply concerns dominating the past week. West Texas Intermediate fell 79 cents, or 1.24%, to close at US$63.17, while Brent crude slipped 0.75% to US$66.13. Ongoing production increases from OPEC+ continue to weigh on sentiment, despite a cartel report forecasting stronger oil demand in 2026.
Gold edged higher after the CPI report, rising 0.18% to US$43,348. Silver gained 0.80% to finish at US$37.91.
Cryptocurrencies benefited from the improved risk appetite. Bitcoin advanced 1.1% to close Tuesday’s trade at US$120,177, while Ethereum outperformed with an 8.8% jump to US$4,621.
Copper rallied 1.1% on the LME, adding US$109 to close at US$9,840 a tonne. Iron ore also strengthened, gaining 0.82% in New York to end at US$104.70, supported by optimism that lower interest rates will boost global growth and commodity demand.
Economic Calendar
AU:
- Wage Price Index (Q2) – 11:30am
- Home Loans (Q2) -11:30am
This article was written by Paul Darwell, Rivkin Securities Pty Ltd. Enquiries can be made via [email protected] or by phoning +612 8302 3632.
