By Jamie McGeever
ORLANDO, Florida, Nov 11 (Reuters) - US stocks leaped and Europe notched a record-high close on Wednesday, spurred by an encouraging outlook on the AI trade from neocloud firm CoreWeave.
A 20% surge in the company's battered shares, and a rebound in Nvidia stock, more than offset investors' concerns that the Fed might deliver a jumbo-sized interest rate hike next month.
In my column today I look at the confusing communication coming out of the Fed, after Governor Chris Waller on Tuesday put a 50-basis-point rate hike on the table for next month. Inflation may be sticky, but we have known that for a long time. To go from a 25 bps hike in September to a pause in October, then a 50 bps hike in December, doesn't make sense.
Today's Key Reads
• EXCLUSIVE-Military-linked Chinese university bought Nvidia H200 chips despite US blacklist, records show
• After US market shake-out, signs suggest too soon to say worst is over
• Bond storm of 2026 may be passing, but Fed gusts linger: Mike Dolan
• UK inflation to overshoot Bank of England target for next 4 years, NIESR forecasts
• Trump’s Iran war pause is as costly as new strikes: Bousso
• Today's Key Market Moves STOCKS: Japan +1.3%, China +0.4%. Europe +0.7% to new closing high, UK +0.8%. Nasdaq +1.6%, S&P 500 +1.3%, Dow +0.5%.SECTORS/SHARES: All 11 sectors in the S&P 500 rise except consumer discretionaries. Tech +2.7%, energy +1.8%. Semiconductors +5.6%. CoreWeave +20%, Sandisk +14%, Micron and Dell +12%. Airbnb, McDonald's -3%.FX: Dollar hits 19-month high, euro 19-month low. Dollar/yen nears 160.00. Biggest G10 decliners Swiss franc and Swedish crown.BONDS: US bond market closed for Veterans Day. European yields steady, Japanese yields up slightly.COMMODITIES/METALS: Oil up ~1%. Gold -1% back below $4,000/oz.
Today's Talking Points:
King dollar
One clear and instant consequence of the sudden possibility of a 50 bps Fed rate hike next month is the dollar's rise across the board. The dollar index on Wednesday hit its highest since April last year, and is 5% higher than it was only a couple of months ago. Perhaps most interestingly, the dollar is now nudging 160 yen, widely considered to be "intervention territory" for Japanese authorities. And, as we saw earlier this summer, US authorities.
So far, there has been no jawboning from Tokyo or Washington. The move seems based on "fundamentals," so perhaps there won't be much pushback. What's also interesting is how US stocks have taken it, and Wednesday's surge in US yields, in their stride. Let's see how long that remains the case if a 50 bps hike in December really does look likely.
Europe's stealth rally
While the AI wobble and chip wreck on Wall Street have grabbed the headlines, Europe's benchmark STOXX 600 index has quietly pushed higher, culminating in a record-high close of 663.05 points on Wednesday. Rotation beyond AI-related sectors — 13 sectors out of 20 have outperformed the benchmark since the US midterm elections, according to SocGen — solid Q3 earnings and 2027 outlook upgrades, hopes of de-escalation in the Middle East, and German growth upgrades have all helped.
With roughly half of STOXX 600 companies having now reported, Q3 earnings are tracking around 24% year-on-year growth, according to Nuveen. That's solid. But it's narrow growth. Energy accounts for almost half of that. Take energy and technology out, and the number falls to around 10%. Nuveen calculates that energy, AI-exposed tech, and financials together account for roughly 85% of aggregate earnings growth this quarter, despite representing a smaller share of the index by company count.
Import China's deflation
US inflation and debt-servicing costs are a problem. Absent aggressive rate hikes or a sudden AI productivity boom, this is likely to remain the case in the US and other Western economies too. The scramble for commodities, resources, and energy, reshoring, and protecting domestic industries are all inflationary, requiring higher interest rates, and limiting governments' fiscal room for maneuver. Could this force an eventual rapprochement between the West and China?
Gavekal's Louis-Vincent Gave argues that most Western leaders face an unenviable choice: reject China to protect their domestic industry, which will entail higher inflation, higher interest rates, and mounting pressure on welfare states; implement deeply unpopular austerity; or rekindle relations with China, the world's biggest exporter of deflation, which helps lower interest rates and keep the welfare state funded. All have major downsides.
What could move markets tomorrow?
• Japan wholesale inflation (October)
• UK GDP (Q3, prelim)
• European Central Bank President Christine Lagarde speaks
• US Treasury sells $22 billion of 30-year bonds at auction
• US Fed officials scheduled to speak include Beth Hammack, Michael Barr, Austan Goolsbee, Mary Daly, Jeffrey Schmid, John Williams and Philip Jefferson
Want to receive Trading Day in your inbox every weekday morning? Sign up for my newsletter here. 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.
(Reporting by Jamie McGeever; Editing by Bill Berkrot)
