U.S. stock markets experienced a significant upswing on August 12, 2025, with major indices including the S&P 500 ETF (SPY), Dow Jones ETF (DIA), and Nasdaq ETF (QQQ) all closing in positive territory. This market optimism was primarily driven by the United States and China agreeing to extend their trade truce, a development that eased considerable economic tensions between the two global economic powerhouses. President Donald Trump's announcement to postpone further tariff increases provided a crucial period of stability for businesses dependent on predictable trade relations.
The backdrop to this market rally was the release of July's Consumer Price Index (CPI) data. The report indicated that annualized inflation remained steady at 2.7%, consistent with the previous month's figure. However, core inflation, which excludes volatile food and energy prices, showed an acceleration, rising to 3.1% year-over-year. This mixed inflation picture, alongside indications of a cooling labor market, has intensified market expectations for a potential Federal Reserve interest rate cut in September. Financial markets are currently pricing in a high probability of such a move, with many analysts anticipating a 0.25% reduction. The U.S. dollar saw a slight dip against major currencies following the data release.
In commodity markets, oil prices also registered gains. Brent crude rose by 0.4% to $66.90 per barrel, and West Texas Intermediate (WTI) crude saw a similar increase of 0.4% to $64.20 per barrel. These gains were directly linked to the improved U.S.-China trade relations, which diminished concerns about a trade war impacting global economic growth and, consequently, oil demand. The extension of the trade truce, initially agreed upon in May and now extended to November 10, 2025, has provided a critical period of stability, preventing a significant escalation of tariffs that could have seen duties rise substantially on imports and exports between the two nations. This pause offers businesses vital breathing room for planning and operations, particularly as the year-end holiday season approaches.
The July CPI report detailed that while headline inflation held steady at 2.7%, core inflation climbed to 3.1% year-over-year, its highest point in six months. This rise in core prices is partly attributed to tariffs that have increased the cost of consumer goods such as clothing and furniture. Despite this, energy prices saw a decline, with gasoline prices falling by 2.2%. The Federal Reserve's stance on interest rates remains a key focus, with differing views among policymakers regarding the necessity of a September cut. While some officials believe the current economic data does not warrant a reduction, others are concerned about the labor market's performance and see a cut as a supportive measure. The market, however, largely anticipates a rate adjustment, with expectations leaning towards a cut to stimulate economic activity. The extension of the trade truce, which prevents potential tariff rates as high as 145% on Chinese imports and 125% on U.S. goods, offers a crucial period of stability for businesses.