Equity indices across European and US markets rose yesterday. Big Tech and software stocks rebounded, alongside gold and silver. Bitcoin lagged, underperforming the broader risk rally, but overall it was a constructive session.
The rebound was partly driven by a mixed – but less negative than expected – set of US data. Durable goods orders declined, though by less than anticipated. Housing starts improved and industrial production rose faster than expected, adding to last week’s jobs report showing the US economy added 130’000 jobs. The data pushed the US 2-year yield higher from its October lows, though this did not weigh on risk appetite.
On the corporate front, Meta announced that it will deploy millions of Nvidia processors over the coming years – a commitment worth tens of billions of dollars. Nvidia rose more than 1.5%, though it remained capped around the $190 level. Amazon gained 1.81% as investors shrugged off news that Berkshire Hathaway reduced its Amazon holdings by 75%. While some interpret that move as a warning about competitive risks from AI-driven disruption in e-commerce, the broader strategic picture may be more nuanced. Amazon has substantial upside leverage to AI across multiple segments — from warehouse automation and logistics optimisation to its AWS cloud franchise, one of the largest AI infrastructure providers globally, as well as its role in chip distribution. From a structural standpoint, Amazon remains one of the more diversified AI beneficiaries. With the stock pulling back toward long-term technical support, the risk-reward profile may look increasingly compelling to longer-term investors.
Overall, Roundhill’s Magnificent 7 index rebounded for a second consecutive session, recovering from its 200-day moving average. While two days of gains provided some breathing room, trend and momentum indicators suggest downside risks have not fully dissipated, particularly given concerns around leveraged AI-related worries. Big Tech now trades roughly 10% below record highs, which may attract dip buyers, though further volatility cannot be ruled out.
Will the selloff resume? That’s the million-dollar question. Futures are slightly positive this morning, but yesterday’s Fed minutes will certainly not be a great help. Despite insults, firing threats, personal attacks and public pressure from the White House and the US President himself, the latest FOMC minutes showed that some Fed members wanted to add a statement saying, “if inflation remains above target levels” , the Fed could raise rates. That would spook the White House, which wants these rate cuts, and could also create tensions over the Fed’s trajectory when Powell is replaced by Mr. Warsh, who more likely than not gave a sort of promise to the White House that he would push for lower rates come hell or high water.
It would be great, however, if the Fed’s direction is justified by economic data, because otherwise policy transmission may not go smoothly. The Fed could cut rates, but yields wouldn’t necessarily follow lower, limiting the impact on borrowing costs or mortgage rates that have a real effect on the economy and demand.
In FX markets, the US dollar is firmer following the stronger US data. The EURUSD is trading just below 1.18, hovering slightly above its 50-day moving average (1.1770). Cable has slipped below its 50-DMA and beneath the 38.2% Fibonacci retracement of the November-to-January rally, suggesting the pair has now stepped in the bearish consolidation zone and could ease further. This aligns with rising expectations of a more dovish Bank of England following softer labour market and inflation data. I like when the price action matches the fundamentals so perfectly!
And finally, crude oil rebounded yesterday as peace talks between Russia and Ukraine ended abruptly, and Iran/US talks didn’t rule out the possibility of a broad military operation in the region involving the US and Israel. It’s extremely hard to tell what’s next. If Middle East tensions ease thanks to fruitful nuclear talks between the US and Iran, oil should give back its gains at current levels. If, however, the threat of war rises — a scenario that would seriously shake the Middle East — we could see the price spike turn into a persistent medium-term positive trend. In that case, US crude could reasonably reach $80 per barrel. I really hope it doesn’t.
