The latest U.S. inflation data for August 2024 shows that inflation has slowed for the fifth consecutive month, decreasing from 2.9% in July to the current 2.5%, the lowest level since February 2021 and below the expected 2.6%.

Among the factors, the largest decline was in energy prices, which fell by 4% compared to a 1.1% increase in July, mainly due to a 10.3% drop in gasoline prices and a 12.1% drop in fuel oil prices.

Food prices, on the other hand, rose by 2.1%.

Excluding the more volatile energy and food prices, the core inflation rate in the U.S. for August 2024 fell to a three-year low of 3.2%, in line with market expectations, with the largest component, the housing index, increasing by 5.2%, up from 5.1% in July.

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However, overall, the core inflation rate remains relatively low, suggesting that the effects of the Federal Reserve's previous interest rate hikes are gradually taking effect.

The data indicates that inflation was under control in August, potentially supporting the Federal Reserve's expectations for a rate cut.

However, the core inflation rate is still higher than the Federal Reserve's target rate of 2%, further confirming expectations for a 25 basis point cut.

See the chart below, after the inflation data was announced, the possibility of a 25 basis point rate cut by the Federal Reserve increased from 66.0% the previous day to 85.0%, while the possibility of a 50 basis point cut decreased from 34.0% the previous day to 15.0%.

Perhaps influenced by this news, the yield on the U.S. 10-year Treasury note has stabilized above 3.66%, slightly rebounding from a 15-month low, with the bond market performing steadily.

However, the stock market is a different story.

In the early session of the day, U.S. stocks fell briefly but then continued to climb, with the Dow Jones Industrial Average (DJI.US) closing near its daily high, up 0.31%; the Nasdaq Composite Index (IXIC.US), which reflects the performance of technology stocks, rose even more, up 2.17%.

The economic data implies that the possibility of changes in monetary policy is not significant, bringing stability, and the stock market's surge may be mainly driven by the performance of technology stocks.

This year's star stock, NVIDIA (NVDA.US), indicated that BlackWell could be in short supply, drawing the market's attention back to AI concept stocks.

NVIDIA rebounded from the sluggish performance of the past few days, with a single-day increase of 8.15%.

It is worth noting that, given the current tight supply, Huang Renxun implied that not all may be supplied by TSMC (TSM.US) capacity, but if other supply channels are used, it may affect product quality, and emphasized that TSMC can provide more stable and higher yield products.

TSMC's stock price also rose by 4.80%.

In addition to NVIDIA's individual factors, there are rumors that the U.S. may allow chip companies to export advanced chips to Saudi Arabia, which is also a significant driving factor.

Other major technology stocks also followed suit, with semiconductor stocks ARM (ARM.US) rising by 10.30%, Advanced Micro Devices (AMD.US) up by 4.91%, and Intel (INTC.US) up by 3.48%; semiconductor production solution provider KLA Corporation (KLAC.US) rose by 4.96%, and Broadcom (AVGO.US) also rose by 6.79%.

Interestingly, in addition to the surge in semiconductor stocks, photovoltaic stocks also rose sharply, with data from Wind showing that the U.S. photovoltaic index rose by 5.65%, with First Solar (FSLR.US) up by 15.19%; while the cryptocurrency exchange Coinbase (COIN.US) fell by 0.83%, and Trump concept stocks also declined, with his media technology group Trump Media (DJT.US) down by 10.47%, possibly mainly because Harris's performance was temporarily superior in the television debate that day, driving the performance of photovoltaic stocks, and putting pressure on the cryptocurrency concept stocks and related companies supported by Trump.

Tropical Storm Francine has intensified into a Category 2 hurricane, and some oil facilities in the Gulf of Mexico have been shut down, which may affect short-term crude oil supply.

Therefore, despite the impact of global demand or insufficiency, crude oil prices have still risen.

The WTI crude oil futures price is now up by 1.09%, at $68.044 per barrel; the Brent crude oil futures price has risen by 1.18%, at $71.446 per barrel.

The Federal Reserve's expectations for a rate cut are favorable for gold prices, which are now up by 0.34%, at $2,520.8 per ounce.

The above is the market's immediate response to the inflation data.

The reason why inflation data is so important is that the Federal Reserve's monetary policy has two major considerations, one is inflation, and the other is employment.

Therefore, whether the inflation data meets the Federal Reserve's target will determine its next interest rate decision.

The reason why the Federal Reserve's monetary policy is so important is that the U.S. dollar, as the most important settlement currency in the world, the interest rate cycle will determine the direction of capital costs, thereby affecting the flow of economic resources.

Next, the market will pay attention to the U.S. Producer Price Index and the number of initial jobless claims, the former reflects the price level on the supply side, thus affecting downstream prices, and the number of initial jobless claims reflects employment conditions.

If new jobs decrease and the number of unemployed people increases, the Federal Reserve may increase the extent of rate cuts to stimulate the economy, so these two indicators are also very important in measuring monetary policy decisions.