Encouraging inflation data calmed concerns about higher rates just as another wave of strong AI news kept investors firmly focused on growth.
Read this article to understand:
- What happened to oil prices this week
- How softer inflation and AI continued to support equities
- Why bond investors’ reaction was more nuanced
The week began with little sign of a breakthrough between Iran and the United States, and investors increasingly worried about the impact of their standoff on global energy supplies. Oil prices climbed steadily through the first half of the week, with Brent crude rising from around $84 a barrel to almost $90. This reignited concerns that inflation could prove more stubborn than hoped and that interest rates could remain higher for longer.
Equity markets remained remarkably resilient
Yet beneath the surface, equity markets remained remarkably resilient. The S&P 500 spent much of the week hovering close to record highs. The equal weighted S&P 500 repeatedly moved to fresh highs, suggesting that gains were becoming more widespread, rather than relying on a handful of mega-cap companies. This was an encouraging sign for the health of the equity market.
As of Friday morning, global equities measured in local currency were up by over 3.5 per cent since the beginning of August and by close to 16 per cent so far in 2026.
The turning point for markets this week came from a one-two punch of encouraging US inflation data. Wednesday’s CPI report showed consumer prices rising broadly in line with expectations, with core inflation slowing to 2.5 per cent year on year, its lowest level since early 2021.
And any remaining concerns that higher oil prices were feeding into broader inflation were largely put to rest a day later, when producer prices were reported unchanged in July, surprising economists, who had expected another increase.
Together, the two reports eased fears of an imminent US Federal Reserve (Fed) rate rise and reinforced the view that inflation was continuing to move in the right direction. By the end of the week, markets were pricing just a 35 per cent chance of a September rate increase, down from more than 50 per cent only a few days earlier.
Alongside the news on inflation, artificial intelligence continued to provide powerful support for equity markets. Strong results and optimistic outlooks from companies including CoreWeave and Super Micro reinforced the view that demand for AI infrastructure remained exceptionally robust. Semiconductor stocks rallied strongly, and South Korea’s KOSPI surged as investors embraced the prospect of continued spending on AI hardware and computing power.1
Bond markets told a more nuanced story. Softer inflation data pushed US bond yields lower, particularly at shorter maturities. For example, the two-year Treasury yield fell by nearly ten basis points over the week as expectations for another Fed rate rise faded. However, long-dated bonds remained under pressure. A $25 billion auction of US 30-year Treasuries on Thursday cleared at 5.22 per cent, the highest level since 2001, highlighting investors’ reluctance to lock money away for decades without meaningful compensation.
Confidence is growing that inflation is moving in the right direction
Confidence is growing that inflation is moving in the right direction, but concerns around the country’s rising debt, persistent borrowing needs and long-term economic outlook continue to keep long-term yields near their highest levels since 2007.
By Friday, markets had largely chosen to focus on softer inflation rather than geopolitical uncertainty. Equities continued to hit all-time highs, bond yields were retreating from their peaks and oil prices were easing after a six-day rally. The week served as a reminder that, while headlines may be dominated by geopolitics, the economic data often determines market direction in the end.
For now, investors appear increasingly comfortable with moderating inflation, resilient economic growth and continued AI-driven investment, a backdrop that remains supportive for risk assets despite an uncertain world.2
Past performance is not a reliable indicator of future results.
References
- The companies mentioned are for illustrative purposes only and do not constitute an investment recommendation.
- Source of all the data for this article: Aviva Investors and Bloomberg. Data as of 14 August 2026.
