Nvidia Beats but Fails to Wow as Sticky Inflation Clouds Fed Outlook

U.S. stocks closed marginally lower on Wednesday in a session defined by caution. The S&P 500 was essentially flat at 7,675.70 points, the Nasdaq Composite dipped 0.08% to 26,130.20, and the Dow Jones Industrial Average fell 0.21% to 53,463.88. Trading volume of 14.2 billion shares came in below the 20-day average of 16.2 billion, as many participants sat on their hands ahead of Nvidia's earnings after the bell.

Healthcare stocks were the biggest drag on the S&P 500, with Moderna falling 5.8% after the prior session's surge on cancer vaccine trial data. On the positive side, Meta rose 1.1% after agreeing to pay up to $18 billion in landmark settlements over children's safety on its platforms, while Apple also gained 1.1%. Intuit fell 3.2% after issuing a below-consensus annual revenue forecast.

Global Indices — Day and 5-Day performance

The headline PCE price index rose 0.2% month-over-month and 3.7% year-over-year in July, slightly above the 3.6% consensus. The core PCE measure — the Fed's preferred inflation gauge — advanced 0.2% M/M and held steady at 3.3% Y/Y, matching expectations but still sitting well above the 2% long-run target. Separately, the second estimate of Q2 GDP was unchanged at 1.5%, though underlying details pointed to stronger consumer spending and business investment.

The data reinforced expectations that the Fed will stand pat at its September meeting, with the CME FedWatch tool showing a 64% probability of no change, up from 60% the prior day. Money markets have now fully priced in a rate hike by December. The U.S. 10-year Treasury yield climbed 2 basis points to 4.65%, adding to a recent surge driven by inflation jitters, rising government debt past $40 trillion, and mega-cap corporate bond issuance to fund AI infrastructure. Beneath the headline, the consumer picture was mixed: personal savings rose to 3.0% from a historically low 2.6%, but inflation-adjusted spending was flat in July, raising questions about whether the second-half re-acceleration story holds. The bond market offered some encouraging signs, with Wednesday's 5-year auction drawing a bid-to-cover ratio of 2.37 — the highest this year — even as the 2s/30s curve printed its flattest close since the July Fed meeting.

Oil prices fell for a second session on reports of diplomatic progress in the Middle East. Brent crude dropped 1.6% to $87.22 a barrel and WTI fell 1.3% to $81.31, extending Tuesday's 5% plunge after Russian media reported that the U.S. and Iran were close to a fresh ceasefire deal. Separately, Al Jazeera reported that Iran and Oman agreed on a new temporary shipping route through the Strait of Hormuz, although a top Iranian official stressed that full reopening requires the U.S. to fulfil commitments from June's collapsed framework deal.

Analysts at Vital Knowledge cautioned that "a geopolitical risk factor will be permanently embedded in the price" given the ever-present prospect of renewed hostilities. Tanker traffic through the strait remains minimal at just five commodity ships on Tuesday, far below pre-war levels when roughly a fifth of global oil and LNG flowed through the channel. Away from oil, U.S. copper futures hit a record high of $6.75 per pound, while U.S. natural gas jumped 3% to a one-month high — a divergence that underscores how the energy complex is being pulled in different directions by geopolitics, industrial demand, and weather.

The diplomatic mood was tempered by a Bloomberg report that Russia is preparing to escalate attacks on Ukraine after concluding that peace talks are at a dead end. The report cited Kremlin-linked sources saying Russia is considering intensified ballistic missile strikes on Kyiv and other Ukrainian cities, with some officials suggesting tactical nuclear weapons remain a last-resort option.

Commodities, Energy & FX — Daily and 5-Day performance

The 10-year Treasury yield has surged to 4.7%, up from 4.4% less than two months ago, as investors price in stronger growth expectations and competition for capital from the multi-trillion-dollar AI investment boom. With U.S. debt now exceeding $40 trillion — roughly 100% of GDP — interest on debt held by the public is running above $1 trillion annually, rivalling defence spending. A sustained 30-basis-point rate increase would add approximately $100 billion to the annual interest bill.

Treasury Secretary Scott Bessent's pledge to "at least double" buybacks of 30-year Treasuries provided temporary relief but drew criticism for undermining the department's regular and predictable issuance framework. A CNBC report that Washington could tap its near-$1 trillion Treasury General Account (TGA) to fund larger long-bond buybacks offered further support, though the 2s/30s curve still closed at its flattest since the July Fed meeting. The U.S. budget deficit sits above 6% of GDP — the largest in the developed world — with Social Security and Medicare trust funds on track to be exhausted by 2032 and 2033 respectively.