US CPI inflation landed close to expectations

In focus today

• Today is a quiet day for data releases, with no significant market movers.

Economic and market news

What happened overnight

In Australia, the Wage Price Index (SA) rose by 3.4% yoy in Q2 2025, matching the previous quarter's pace and exceeding expectations of a 3.3% increase. An acceleration in both the public and private sectors drove the stronger-than-expected growth, as public sector wages surged by 4.7%, up from 3.6% in Q1, while private sector wages rose by 3.4%, compared to 3.3% previously.

What happened yesterday

In the US, July CPI landed close to expectations on both headline (+0.19% m/m SA, June +0.29%, forecast +0.2%) and core terms (+0.32% m/m, June +0.23%, forecast +0.3%). Surprisingly, the modest uptick in core inflation was mostly driven by services. This would typically be seen as a sign of sticky inflation and hence interpreted as a hawkish signal. However, the fact that core goods and food inflation remained stable at still modest levels alleviated markets' concerns of rapid pass through of tariff-related costs. While we do expect core goods inflation to pick up speed towards fall, the reading supports the case for the Fed's September rate cut.

President Donald Trump renewed his criticism of Federal Reserve Chair Jerome Powell, urging an immediate cut to benchmark interest rates. Trump also hinted at permitting a lawsuit against Powell, citing mismanagement of renovations at the Federal Reserve's buildings.

In Germany, the German ZEW indicator - measuring financial analyst views on the German economy - saw some weakening in August. Analysts rolled back on their assessment of the current situation (-59.5 to -68.6) and expectations (52.7 to 34.7), though the latter remained somewhat above the historical average. According to ZEW, experts were somewhat disappointed with the EU-US trade deal in terms of the economic outlook, while the weak German GDP figures for Q2 added to the weak current assessment index. A weak ZEW indicator should not be overinterpreted, and one should put more emphasis on tier-1 growth indicators such as the PMIs/IFO surveys. Markets seem to share that view as today's downside surprise did not trigger any noticeable reaction.

Equities: Global equities extended gains yesterday, with leadership coming from the US cyclical sectors and small caps. US indices closed at day-high and several indices at new all-time highs. While this pattern has repeated several times in recent months, what stood out yesterday was the market's focus on macro data, in particular, the US inflation print, rather than political headlines or daily news flow. The reaction was more or less textbook alike for the current phase of the cycle, fitting neatly with our strategy view from last month's report that investors are becoming increasingly data-driven, and less focused on the daily political noise.

In the US yesterday, Dow +1.1%, S&P 500 +1.1%, Nasdaq +1.4% and Russell 2000 +2.99%. Overnight, the positive momentum carried into Asia, with strong equity performance across the region. European futures are pointing higher, and U.S. futures are marginally in the green.

FI&FX: The in-line US July CPI print reinforced expectations that the Fed will have room to cut rates in September, lifting risk sentiment and pushing front-end US yields lower. EUR/USD edged higher to the 1.17 mark. The Swedish National Debt Office resumed bond auctions last week, issuing SEK 17.5bn in T-bills after a six-week summer break. Today's auction holds greater significance as it marks the first nominal government bond auction since late June.