US Stocks Bounce on Positive AI News – Nasdaq up 1%
US equity markets staged a solid recovery overnight, with all three major indices closing firmly in positive territory as technology stocks led the charge. The Dow Jones rose 0.76% to finish at 49,147, the S&P 500 gained 0.77% to 6,890, while the Nasdaq outperformed with a 1.04% rally to 22,863. Investor sentiment improved following reports that Meta intends to commit billions of dollars to artificial intelligence infrastructure sourced from Advanced Micro Devices. In currency markets, the US dollar strengthened modestly, with the DXY index advancing 0.19% to 97.88. US Treasury yields were mixed across the curve; the 2-year yield rose 2.3 basis points to 3.461%, while the 10-year yield edged 0.2 basis points lower to 4.029%. Oil prices moved lower after Iran signalled it was prepared to negotiate a deal with the United States. Brent crude slipped 0.27% to $71.30 per barrel, while WTI declined more sharply, falling 1.03% to $65.63. Gold also retreated, dropping 1.57% to $5,143.85 as improved risk appetite reduced demand for safe-haven assets.
Geopolitics Still Dominating Market Moves
Geopolitics is still dominating market moves, with fundamentals coming a poor second place in the current environment. Obviously, the geopolitical updates are being traded with a view to their potential impact on the underlying fundamentals; however, we are certainly seeing much bigger reactions in markets from updates on the newswires than we are from data releases. Yesterday, we saw a good reaction in the yen when we heard news that PM Sanae Takaichi had advised the Bank of Japan that she had reservations about potential upcoming interest rate hikes, and we have seen big moves in oil and haven products on the back of a lowering of tensions in the Middle East between Iran and the US. The next potential banana skin comes, not unsurprisingly, from President Trump, but surprisingly in the Asian session today when he makes his second State of the Union address in Washington. There is no guarantee that he will make comments that will move markets; however, logic and experience over the last year tell us that it’s a strong possibility, and if he does, it could have a significant impact.
Another Lively Day Ahead for Markets
Looking ahead, markets face a busy session across multiple regions. Australian CPI data will be closely watched during the Asian session, with expectations for the month-on-month data to show a reduced 0.2% increase, while the year-on-year data is expected to come in with a still-sticky 3.7% increase. We will also have comments from RBA Governor Michele Bullock after the close when she speaks in Melbourne. However, the highlight of the Asian session is likely to be the State of the Union address by President Trump, coming midway through the day. In Europe, ECB President Christine Lagarde is scheduled to speak in front of the European Parliament, while the US session will bring the usual weekly unemployment claims data (exp 217k). With inflation and policy expectations remaining central themes, volatility is likely to remain elevated.
