Market Matters – Warsh puts rate hikes back in play; Nvidia delivers

• The US economy remains mixed. Strong private-sector demand in the second quarter contrasts with flat consumer spending in July and weak hiring. Inflation also remains high, with headline PCE at 3.7% and core PCE at 3.3%.
• Warsh has put further interest-rate rises back on the table, although he did not commit to action in September. The Treasury market reaction suggests investors are mainly reassessing near-term interest-rate policy rather than worrying more about long-term government finances.
• Nvidia’s $96.2 billion quarter and $108 billion revenue forecast show that demand for AI infrastructure remains very strong. The focus is now shifting towards profit margins, funding needs and whether these large investments will generate sufficient returns.
• Renewed conflict between the US and Iran has increased the risk of disruption in the Strait of Hormuz and higher inflation. Brent crude moving above $90 will matter most if the conflict causes lasting supply disruption or keeps a sustained risk premium in oil prices.
• The investment backdrop remains positive, but investors need to be more selective. Japan is performing well, China’s economy remains weak, the ECB appears more likely to raise rates than the Bank of England, and company earnings will need to compensate for less supportive interest-rate conditions.