ORLANDO, Florida, Aug 14 (Reuters) - TRADING DAY

Making sense of the forces driving global markets

By Jamie McGeever, Markets Columnist

A surprise spike in U.S. producer price inflation took the

wind out of stock markets' sails on Thursday and prompted

investors to reassess their view that an interest rate cut next

month was a near certainty.

More on that below. In my column today I look at five charts

that show the foundations underpinning the U.S. economy and Wall

Street may be shakier if you strip out the AI- and tech-related

spending.

If you have more time to read, here are a few articles I

recommend to help you make sense of what happened in markets

today.

1. Trump's data war risks creating false calm: Mike

Dolan

2. Fed hawks and doves: what U.S. central bankers

are

saying

3. Trump's debanking order could create headaches

for

banks, sources say

4. Trump says Putin ready to make deal on Ukraine,

U.S.

hopes to include Zelenskiy

5. Which Donald Trump will negotiate with Putin in

Alaska?

Today's Key Market Moves

* STOCKS: The Russell 2000 falls 1.3% but the S&P

500,

Nasdaq and Dow basically end flat. Indeed, the S&P 500 manages a

new closing high.

* SHARES/SECTORS: Seven sectors in the S&P 500 fall,

led

by industrials and materials, off around 0.9%. Fashion retailer

Tapestry sinks 15% on tariff, profit warning.

* FX: Dollar rebounds around 0.5% for its best day

in two

weeks. Biggest G10 FX move is New Zealand dollar, down 1%.

* BONDS: Treasury yields rise as much as 5 bps.

Curves

barely move, but 2s/30s still close to steepest levels in three

years around 115 bps.

* COMMODITIES: Oil spikes around 2%, its biggest

rise in

two weeks.

Today's Talking Points:

* The Fed outlook. Rates traders trimmed the probability of

a quarter-point rate cut next month to 90% from 100% after the

release of July's producer price inflation data. Core annual PPI

shot up to 3.7%, the highest in three years. Excluding pandemic

distortions, the jump from June's 2.6% was the biggest since

comparable data was first gathered in 2011.

Talk of a 50-basis point cut next month, partly fueled by

Treasury Secretary Scott Bessent on Wednesday, has evaporated.

The PPI data ensured that, but Bessent also rowed back a bit on

Thursday. Another couple of solid inflation and employment

reports, and could a September cut be taken off the table

completely?

* European GDP. The first estimate of Q2 UK growth was

released on Thursday and broadly speaking, the 0.3% expansion

was better than expected - or not as bad as feared, depending on

your view. Indeed, Britain's economy grew nearly twice as fast

as the U.S. economy in the first half of the year.

Euro zone GDP was less stellar, with a slump in industrial

production in June and downward revision to May capping overall

GDP growth in the April-June period at just 0.1%. That marked a

clear slowdown from 0.6% expansion in the first quarter.

The elephant in the room, of course, is the impact of

tariffs, which has yet to be fully felt, suggesting the second

half of the year is likely to be bumpier than the first.

* Do you want to make a deal? Donald Trump and Vladimir

Putin meet in Alaska on Friday, with the U.S. President saying

his Russian counterpart is keen to "make a deal" on Ukraine. The

aim of Friday's talks is to set up a second meeting including

Ukraine, and perhaps agree the framework for a ceasefire.

Despite his harsher tone toward Putin over the past months,

Trump has a long history of trying to placate the Russian

leader. The Trump administration has sought to temper

expectations, and White House press secretary Karoline Leavitt

told reporters on Tuesday the meeting would be a "listening

exercise."

That's probably not what Ukrainian President Volodymyr

Zelenskiy wants to hear.

The U.S. economy's key weak spots in five charts

The U.S. economy seems to be chugging along fairly smoothly,

if a little too slowly for some observers' liking. Under the

bonnet, however, the picture is more worrisome, and the risk of

engine malfunction is rising.

Technology's role in the U.S. economy has never been

greater, and artificial intelligence could deliver a historic

productivity boom. But return on the huge investment being made

on that bet could take years to materialize. What's more, an

unbalanced economy may not be desirable in the long term, as it

can lead to poor investment and policy decisions.

Below are five charts that indicate the foundations of the

resilient U.S. economy and booming stock market may be much

shakier than they appear, especially if AI- and tech-related

spending, investment and optimism are stripped out.

INVESTMENT

Inflation-adjusted investment in 'AI-sensitive' sectors of

the economy since the end of 2019 has risen 53%, notes Troy

Ludtka, senior U.S. economist at SMBC Nikko Securities.

Investment elsewhere has inched up just 0.3%.

CONTRIBUTION TO GDP

Relatedly, the contribution of software and IT equipment

capex to U.S. GDP has never been higher, according to analysts

at BlackRock. Aggregate capex in all other areas of the economy,

however, actually fell in the first half of this year - a rare

occurrence.

CONSUMER SPENDING

Meanwhile, personal consumption expenditures are slowing

sharply, a worrying sign given that the consumer accounts for

around 70% of total U.S. GDP. Personal consumption expenditures

in the second quarter grew by only 0.9%, the slowest pace since

the pandemic. And in real terms, consumer spending has

completely flat-lined in the first half of the year.

CORPORATE BANKRUPTCIES

Corporate bankruptcies in July were the highest for a single

month since July 2020, according to S&P Global Market

Intelligence. Even more alarming, the tally of year-to-date

bankruptcy filings through the end of July was the highest for

this seven-month period since 2010. Nearly a third of this

year's bankruptcies were in the consumer discretionary and

industrial sectors.

STOCK MARKET CONCENTRATION

Finally, the concentration on Wall Street has been widely

discussed, but the levels continue to be eye-popping. One stock,

chipmaker Nvidia, accounts for 8% of the benchmark S&P 500's

entire market cap. That's a record for a single name.

And the top 10 stocks, most of which are Big Tech megacaps,

make up 40% of the index's market cap and 30% of all earnings.

These are also record levels.

The more Wall Street - and even global markets - rely on the

revenue, earnings and profitability of a set of companies that

can be counted on two hands, the bigger the potential mess could

be if the trends driving these companies' performance lose

momentum.

What could move markets tomorrow?

* China "data dump" including investment, retail sales,

industrial

production, house prices, unemployment (July)

* Japan GDP (Q2)

* Taiwan GDP (Q2, revised)

* Hong Kong GDP (Q2, final)

* U.S. retail sales (July)

* U.S. industrial production (July)

* U.S. New York Fed manufacturing (July)

* U.S. University of Michigan inflation expectations and

consumer

sentiment (August, prelim)

* U.S. President Donald Trump and Russian President Vladimir

Putin

summit in Anchorage, Alaska.

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