Global markets staged a rebound after sharp volatility last week, with investors refocusing on the performance of AI-linked assets, while market expectations for the Federal Reserve’s future monetary policy path have been revised. Analysts pointed out that weak employment data has scaled back bets on further interest rate hikes. Meanwhile, investments in AI infrastructure, data center financing and the restructuring of global supply chains will remain core themes in the capital market.
In the U.S. stock market, the Nasdaq 100 Index posted a robust weekly performance. It surged sharply on Tuesday, pulled back partially on Wednesday and Thursday, then recouped all losses on Friday following the release of the soft employment report.
The market had been lingering on concerns over AI investment returns, with investors worrying whether enterprises could generate sufficient earnings after pouring billions of dollars into artificial intelligence infrastructure. Nevertheless, some institutions argued that current market skepticism over AI capital outlays may have been overblown.
Analysts noted that investors are closely watching bond issuance opportunities tied to data centers and AI. Alphabet’s large-scale bond offering was heavily oversubscribed recently, demonstrating robust market capacity to absorb financing demand for AI infrastructure in the long run.
“The real market risk may not be sustained weakness in AI investment, but a sudden announcement from a major corporation to slash relevant spending,” analysts commented. If expectations for AI capital expenditures stay steady, corresponding credit assets may see compressed credit spreads and declining yields.
Cooling Jobs Data Sharply Dials Back Fed Rate Hike Odds
Recent U.S. economic figures have reshaped market pricing of Federal Reserve policy moves.
Per Bloomberg WIRP data, the implied probability of a September Fed rate hike has tumbled from nearly 100% on July 24 to less than 50% at present.
Labor market statistics showed an unexpected decline in U.S. nonfarm payrolls for July, while hiring readings for the prior two months were revised downward, signaling a cooling labor market.
In addition, the Institute for Supply Management (ISM) Services Employment Index printed below the 50 contraction threshold. Though ADP private payrolls beat the official nonfarm report, the 44,000 new jobs added still undershot consensus forecasts.
Markets believe the softer employment backdrop has given the Federal Reserve leeway to reassess its policy posture.
Mounting Disputes Over Inflation Gauges, Markets Question Conventional Data Benchmarks
On the inflation front, debate has intensified over the reliability of headline CPI and core PCE, the Fed’s traditional key metrics.
Some analysts contended that the alternative Truflation inflation index captured price pressures much earlier during 2021–2022, whereas official CPI carries lagging distortions stemming from methodologies such as housing cost calculation.
Data shows the inflation level tracked by Truflation has fallen markedly. Analysts argued the Fed might have pursued a different monetary policy trajectory had it leaned more on alternative indicators instead of relying solely on CPI back then.
“The core issue facing the market right now is more about affordability rather than pure inflation,” analysts said. The ripple effects of the 2021–2022 price surge may not have been fully reflected in conventional statistical frameworks.
Some market participants also pointed out that the Federal Reserve has long anchored policy decisions to core PCE, which spent most of the past several years running below the 2% target, offering policymakers greater operational flexibility.
Warsh Leans Toward Rate Cuts; Iran Tensions May Constrain Policy Room
Markets assess that Federal Reserve Chairman Kevin Warsh tilts toward eASIng monetary policy rather than continuing the tightening cycle.
Analysts explained that de-escalation in Iran, the reopening of the Strait of Hormuz, and U.S. approval for more Iranian crude to re-enter global supply chains could further ease energy inflation, creating a more favorable backdrop for the Fed to deliver rate cuts.
Negotiations between the U.S. and Iran remain fraught with uncertainty, yet markets are pricing in hopes of regional détente.
Bond Market Divergence: AI and Security Sectors Stand Out as Investment Focus
Looking ahead, analysts expect peRSIstent supply of global sovereign and corporate debt to keep weighing on long-dated bond yields.
Meanwhile, the short-end rates curve will likely price out further rate hike bets incrementally. While full pricing of a rate cut cycle is still distant, the crowded positioning for additional tightening has unwound significantly.
In credit markets, AI and data center-linked assets remain highly coveted. Portfolio rebalancing raises the odds of narrower credit spreads and lower yields for these instruments.
In equities, analysts are bullish on the global Production Security (ProSec) industrial complex, covering energy generation, power production, smelting, processing and refining.
Amid global supply chain reconfiguration, nations are prioritizing self-sufficiency in critical industries, with fiscal funding and policy incentives set to play a larger role in industrial investment going forward.
Analysts noted that global industrial policy has shifted from pure cost minimization toward national security imperatives, with divergent regional investment priorities:
Europe will likely emphASIze military manufacturing capacity; other regions will focus on food and water security; semiconductors, artificial intelligence and computing power will remain the epicenter of global technological competition.
Furthermore, the global supply chain landscape is undergoing structural shifts. While U.S. policies reshaping supply chains aim to boost domestic exports, they have also spurred broader industrial localization across economies, unlocking fresh investment opportunities in related sectors.