Morning Bid: AI and deals fizz drown out politics

By Mike Dolan

LONDON (Reuters) -What matters in U.S. and global markets today

By Mike Dolan, Editor-At-Large, Finance and Markets

World stock markets cooled a touch on Tuesday after another AI-spurred start

to the week, with Washington's shutdown putting the spotlight Federal Reserve speakers rather than data and overseas attention on Japan's new prime minister and the absence of one in France.

AI-fueled risk appetite helped gloss over the messy political pictures to send Wall Street and world stock to new record closes on Monday - with MSCI's all-country index now up almost 19% for the year. Chip stocks roared after AMD's blockbuster supply pact with OpenAI, allowing the ChatGPT creator to buy a stake of up to 10% in the chipmaker and sending AMD's stock up 24%.

With dealmaking gathering pace in financial and commodities sectors too, the frenetic activity is encouraging speculation about another leg higher in the stock market. Regional bank Comerica gained 13.7% on Monday after Fifth Third said it will buy the company in an all-stock deal valued at $10.9 billion and the Trump administration also announced a stake in Canada's Trilogy Metals as part of a mining development push in Alaska - doubling Trilogy's U.S. listed shares overnight.

In macro markets, the dollar firmed against the euro and yen as Japan's leadership change cuts bets on a Bank of Japan rate hike this month and the French political impasse weighed further on French stocks and the single currency. Wall Street's attention switches to appearances later in the day from new Fed board member and former White House adviser Stephen Miran and an auction of 3-year Treasuries - with stock futures and Treasury yields steady to firmer. 

* The shock resignation of Prime Minister Sebastien Lecornuon Monday hit French stocks and bonds and the euro on Monday butdomestic markets stabilised somewhat on Tuesday as Lecornu wasgiven two days of talks to end the crisis. Investors areweighing whether President Emmanuel Macron risks dissolving theNational Assembly, but market reactions remain relatively mutedas it all plays out in a more bullish global environment. * Sanae Takaichi's weekend victory to lead the ruling LDP- putting a fiscal dove on course to become Japan's first womanprime minister - kept the yen on the back foot near August 1'speak of 150.91 per dollar as long-dated government bond yieldsthere continued to climb. A relatively smooth 30-year auctioneased some angst, but did not cap the yield rise as expectationsof bigger fiscal outlays and a slower BOJ hiking path steepenthe curve. * AMD surged nearly 24% after agreeing to supply AI chipsto OpenAI in a multi-year deal touted to generate tens ofbillions of dollars in annual revenue, with an option for OpenAIto take up to a roughly 10% stake - lifting the PhiladelphiaSemiconductor Index almost 3%. The AI buzz and hot inflationfears spilled over into broader risk assets as gold hit a recordnear $3,977, while crude held modest gains amid steadying OPEC+signals. Bitcoin pulled back a touch.

In today's column, I discuss how G7 policymakers are keeping the macro policy lights on "go" - running the global economy and markets hot even with inflation rates above target. 

Today's Market Minute

*  Outgoing French Prime Minister Sebastien Lecornu is starting two days of last-ditch talks on Tuesday with members of various parties, a day after his shock resignation, in an effort to find a way out of the country's political crisis.

* The state of Illinois and the city of Chicago sued President Donald Trump on Monday, seeking to block the deployment of federalized National Guard troops to Chicago, as hundreds of National Guard troops from Texas headed to the nation's third-largest city.

* Tesla  is expected to unveil on Tuesday a more affordable version of its best-selling Model Y SUV, as the electric vehicle maker seeks to reverse falling sales and waning market share amid rising global competition.

* India will allow users to approve payments made through popular domestic payments network, the Unified Payments Interface, using facial recognition and fingerprints starting October 8, three sources directly familiar with the matter said on Tuesday.

* The U.S. government shutdown is delaying key economic data releases, thickening the fog of uncertainty for policymakers and businesses, but they needn't worry. They still have access to one of the best economic indicators, writes ROI markets columnist Jamie McGeever: the stock market.

Chart of the day

If Fed eases further this month, it will further fuel what are already the loosest U.S. financial conditions and lowest Treasury market volatility in almost four years - just as stocks and inflation-hedges such as gold soar and frenetic dealmaking and tech-related speculation builds a head of steam  

Today's events to watch

* U.S. August consumer credit (3:00 PM), Canada Aug trade balance (8:30 AM EDT)

* Federal Reserve Vice Chair for Supervision Michelle Bowman, Fed Board Governor Stephen Miran, Minneapolis Fed President Neel Kashkari and Atlanta Fed boss Raphael Bostic all speak; European Central Bank President Christine Lagarde speaks

* Canada's Prime Minister Mark Carney makes a second visit to the White House

* U.S. corporate earnings: McCormick    

* U.S. Treasury sells $58 billion of 3-year notes

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Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.

(By Mike Dolan; Editing by Toby Chopra)