Overnight, Wall Street roared back. The Dow Jones was up a hefty 617 points, with all the other major US indices also in strong positive territory. Our own market looked set to open 47 points higher in response. So, on the surface, it all looks like good news. But if you dig a little deeper into what’s actually driving this optimism, you’ll find it’s not a glowing economic outlook. It’s the opposite.

The US just copped another surprisingly bad set of inflation numbers. The CPI came in at 2.9% year-on-year. That’s well above the US Federal Reserve’s 2% target. And while some of this inflation is being blamed on tariffs — something the Fed may look through — the broader picture isn’t exactly encouraging.

What’s perhaps even more concerning is the state of the US job market. There have been downward revisions to previous job growth figures, suggesting the labour market isn’t nearly as strong as initially thought. That’s raising some eyebrows — mine included.

You have to wonder if the policies introduced under Donald Trump, especially around tariffs and trade, are now feeding into a broader economic softness. The numbers coming out this week certainly don’t paint a rosy picture. They’re not good for the market and they’re not good for the economy.

But here’s the twist — and it’s a very American twist. Bad news is being spun as good news for markets. Investors are now betting that the Fed could not only cut rates in September — which was already priced in — but might even go as far as a 0.5% cut. That’s why we saw that massive jump in the Dow.

As I said yesterday, artificial intelligence is one of the big engines driving market optimism right now. But interest rate cuts — particularly the hope of them — are also fuelling this latest rally. And based on the data we’re seeing, it looks like those rate cuts are well and truly on the way.