〔Overnight Brief〕Overnight Brief: Benign CPI Keeps Fed on Hold as AI Capex Reshapes the Inflation Debate

US CPI: In-Line Print, New Inflation Phase

July CPI came in exactly as expected: seasonally adjusted headline +0.1% m/m, +3.4% y/y, core +0.2% m/m and +2.5% y/y, according to CICC ^[1][2]. Energy declined 1.5% m/m, with gasoline and fuel oil down 2.9% and 1.7%, but oil has moved higher in August, adding uncertainty ^[2]. Core goods were firm while services were soft; prices for computers, software and other IT products kept rising, which CICC attributes to AI capex-driven supply-demand mismatches transmitting to consumers ^[1][2]. CICC concludes US inflation has entered a new phase, driven less by supply shocks such as tariffs and oil and more by demand expansion from AI investment, so inflation may last longer ^[1][2][3]. A Guolian Minsheng report says AI is reshaping global prices: construction-side infrastructure investment creates 'premium inflation' (2026 capex guidance for Microsoft, Alphabet, Amazon and Meta totals about $710 billion), while application-side efficiency gains create 'deflationary' forces, with Epoch AI showing rapid declines in minimum call prices for equal performance ^[4].

Fed on Hold: Strategists Push Back on Hiking Bets

Despite the stickier inflation narrative, major strategists counselled patience. Goldman Sachs' EMEA investment strategy chief Matheus Dibo said the Fed is likely to keep rates unchanged for all of 2026, with inflation risks easing in the second half; he disagreed with market pricing of hikes ^[5]. Morgan Asset Management's David Kelly said the Fed 'absolutely should' hold and likely will, arguing that three forces—declining year-on-year tariff costs, oil prices falling on optimism about the end of the Iran war, and wage growth trailing inflation—are pushing inflation down ^[6]. He called US inflation 'Teflon inflation' that won't stick, with no wage-price spiral forming ^[6]. CICC, by contrast, says demand-pull inflation deserves more attention than supply-driven inflation, even though the July report eased near-term rate-hike pressure ^[1][2][7].

Markets: Bonds Flat, Flows Strong, S&P Target Raised

Bonds ended flat after 'front-running' the decent data, with MND noting bonds had traded optimistically relative to their oil correlation before CPI; the in-line print produced no major reaction ^[8][9]. Mortgage rates fell back to three-week lows as bond markets dictated day-to-day moves ^[10]. The supercore reading was 0.189% on the month (close to a 2.0% annualized equivalent) and core CPI extrapolates to about 2.58% y/y ^[9]. Equities saw strong hedge fund demand: BofA clients were net buyers of US stocks for a sixth straight week through Aug 7, with $4.1 billion into ETFs and $2.4 billion pulled from single stocks, the strongest overall buying since 2008 ^[11]. Ed Yardeni raised his S&P 500 target to 8,400, citing 'fabulous earnings momentum' ^[12].

China Strategy: AI Rotation, Power Grids, Military Three Engines

CITIC Securities says AI remains the medium-term mainline, but high-level compute hardware is entering a differentiation phase and funds are rotating toward AI applications such as AIGC, cultural media and data elements; it warns on earnings delivery and crowding risk ^[13][14]. The same note describes last week's style shift toward low-position consumption and value, with real estate and consumer sectors strong while communications and electronics corrected ^[14]. CICC argues the power equipment sector has long-term investment value: grid investment is supported by the '15th Five-Year' new energy system and State Grid plans, global AIDC construction is boosting demand, and the global power cycle could last to 2030, with valuations in a historical low range ^[15]. CITIC also sees China's military industry moving from a single domestic-demand model to three engines: domestic defense modernization, military exports via cost advantage and Belt-and-Road cooperation, and spin-off technologies creating trillion-level industries in commercial space, low-altitude economy, future energy, deep-sea tech and large aircraft ^[16]. Aijian Securities recommends a delta strategy of 'AI + dividends + gold' for H2, noting K-shaped divergence and supply-chain-driven inflation ^[17].

Around the Overnight Session: Policy, Indices, Secondaries

China's central bank reiterated a moderately loose stance in its Q2 monetary policy report, promising timely incremental policies and stronger counter-cyclical adjustment; it added an overnight reverse repo, narrowed the temporary standing repo/reverse repo corridor from 70bp to 50bp, and cut structural tool rates by 25bp ^[18]. June social financing stock and M2 grew 7.4% and 8.0% y/y, and new corporate loan rates were about 3.0%, 20bp lower y/y ^[18]. Shanghai's '15th Five-Year' software plan calls for 100,000-card AI computing clusters in Songjiang, Lingang and Qingpu ^[18]. Elsewhere, Shenzhen will publish ChiNext indices for PV, smart driving and robotics in August, expanding tracking products above 200 billion yuan ^[19]. Evercore reported secondaries deals for private assets hit a record $121 billion in H1 2026 as managers hold trophy assets longer ^[20]. The national carbon market, already the world's largest by covered emissions, just completed five years; its third compliance cycle saw prices reach a high of 103.47 yuan/ton on April 29, 2024 ^[21].