Markets Rebound on AI Optimism as Investors Await Key US Inflation Data.
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Markets Rebound on AI Optimism as all Eyes Await Key US Inflation Data
Global markets found their footing on Thursday after two difficult sessions, with technology stocks leading the recovery as investors regained confidence in the artificial intelligence sector. Strong earnings guidance from Micron Technology helped shift sentiment, while easing tensions in the Middle East continued to drag oil prices lower.
With the market's attention now firmly on today's US inflation figures, investors are weighing whether the recent rebound has further room to run.
AI Trade Back in Focus
The biggest story of the day came from the semiconductor sector.
Micron Technology surprised markets by forecasting quarterly revenue well above expectations, signalling that demand for AI hardware remains exceptionally strong. The company said demand for both traditional memory chips and high-bandwidth memory (HBM), which is widely used in AI servers, continues to outpace supply. It also revealed that customers are increasingly locking in long-term supply agreements, giving the company greater visibility over future sales.
The update was enough to reignite enthusiasm across the entire chip sector.
Shares of Micron surged in after-hours trading, while Asian semiconductor companies followed suit. South Korea's SK Hynix and Samsung Electronics both posted strong gains, with Japan's Advantest and Tokyo Electron also rallying sharply. US futures pointed to a stronger open, with the Nasdaq expected to outperform broader markets.
The latest results also help answer a question investors have been asking for months: is the AI investment cycle beginning to slow? For now, the answer appears to be no.
Falling Oil Prices Lift Sentiment
Another factor supporting equities has been the steady decline in oil prices.
Brent crude has now fallen for a fourth consecutive session and is trading below the level seen before the recent conflict between the United States and Iran. As shipping through the Strait of Hormuz continues to normalise and diplomatic talks show signs of progress, traders are removing much of the geopolitical risk premium that had been built into energy prices.
Lower oil prices are generally welcomed by equity markets. They reduce inflationary pressure, ease costs for businesses and consumers, and lessen concerns that central banks may need to keep interest rates higher for even longer.
Not surprisingly, energy stocks were among the weaker performers as crude prices extended their decline.
All Eyes on US Inflation
The next major catalyst arrives later today with the release of the US Personal Consumption Expenditures (PCE) Price Index.
Unlike the Consumer Price Index (CPI), the PCE measure is the Federal Reserve's preferred inflation gauge, meaning today's report could have a significant impact on interest rate expectations.
Markets expect inflation to remain elevated, and another stronger-than-expected reading would reinforce the view that the Fed may need to maintain restrictive monetary policy for longer.
That would likely support the US Dollar and Treasury yields while creating fresh headwinds for Gold and other interest-rate-sensitive assets.
A softer reading, however, could provide investors with some relief and extend today's recovery in equities.
Dollar Holds Firm, Gold Remains Under Pressure
Although the US Dollar eased slightly during Thursday's session, it remains close to its highest level in seven months after benefiting from increasingly hawkish expectations surrounding the Federal Reserve.
Gold, meanwhile, continues to struggle.
The combination of a stronger Dollar, elevated bond yields and easing geopolitical tensions has reduced demand for the precious metal, leaving prices under pressure despite lingering uncertainty across global markets.
Bitcoin Approaches a Critical Test
Cryptocurrency traders are also preparing for what could be a volatile end to the week.
Around $10 billion worth of Bitcoin options are due to expire on Friday, representing more than one-third of all open contracts on Deribit, the world's largest crypto options exchange.
Most of those positions were placed on the expectation that Bitcoin would continue rising. Instead, the cryptocurrency has fallen sharply in recent weeks, leaving many bullish positions out of the money.
That doesn't necessarily mean Bitcoin will continue falling, but it does increase the likelihood of sharp price swings as traders adjust positions and market makers rebalance their hedges.
Many analysts believe the more meaningful signal for Bitcoin's direction will come after the expiry, once much of this temporary positioning has cleared.
Japan Pushes for Continued Monetary Support
In Japan, investors welcomed reports that the government wants monetary policy to remain supportive of economic growth.
A draft of the country's long-term economic strategy encourages the Bank of Japan to continue working closely with the government and maintain policies that support private demand. The language has been interpreted as a sign that policymakers are cautious about raising interest rates too aggressively.
The news helped push Japanese equities sharply higher while keeping pressure on the Yen.
Corporate News in Brief
Several companies also made headlines throughout the session.
Qualcomm raised its full-year revenue outlook and unveiled a new AI-focused processor designed for data centres, sending its shares sharply higher after the close.
OpenAI announced its first custom-built AI chip, developed in partnership with Broadcom, highlighting the growing competition among technology companies to build their own AI infrastructure.
Meanwhile, the largest US banks increased shareholder dividends after successfully passing this year's Federal Reserve stress tests.
Looking Ahead
Today's recovery is another reminder that AI remains one of the market's strongest long-term themes. Strong earnings from companies like Micron continue to support the view that investment in AI infrastructure is still accelerating rather than slowing.
Even so, the direction of markets over the next 24 hours is likely to depend less on corporate earnings and more on inflation.
If today's PCE report comes in hotter than expected, investors may once again favour the US Dollar while scaling back expectations for interest rate cuts. A softer reading, on the other hand, would reinforce today's improvement in sentiment and could provide another boost for global equity markets.
Either way, traders should be prepared for another busy session as inflation once again takes centre stage.
Always trade with strict risk management. Your capital is the single most important aspect of your trading business.
Please note that times displayed based on local time zone and are from time of writing this report.
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Andria Pichidi
HFMarkets
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