Gold backs away from highs, and Copper grabs the limelight

Risk sentiment remains high, US stocks closed at record highs on Wednesday, as traders continue to dismiss fears of a bubble in the AI trade. The rally in the gold price also catapulted the FTSE 100 to a fresh record, and miners led the UK index higher. Equity market futures are pointing to further gains for US and UK stocks later this morning, as the mood remains buoyant. Gold is holding above $4,000 per ounce, but has backed away from Wednesday’s record high, as the scorching rally takes a breather.

Markets brush off hawkish FOMC minutes, as AMD beats Nvidia in chip race to the top

Financial markets seem to be brushing off the hawkish tone to FOMC minutes, and if there are concerns about AI stocks and their lofty valuations, this was not on show on Wednesday. The dip was bought in tech stocks, and the Nasdaq had its best day in 7 weeks, rising more than 1%. The top performer in the US was AMD, the chip maker, who recently signed a multi-billion dollar deal with OpenAI to provide the AI infrastructure for their inference models. The rush to boost computing power is driving this stage of the stock market rally, and AMD is leading the pack. Its share price rose by 11% on Wednesday and is higher by nearly 40% in 5 days. AMD, which has lagged rival Nvidia in recent years, is now playing catch up. Nvidia’s share price is flat so far this week, as we see a sector rotation out of Nvidia and into AMD.

Q3 earnings season the biggest risk for markets

Asian stocks continue to extend gains, and Chinese tech stocks are gaining traction. Asian indices are outperforming most US and European indices so far this year, as the global rally in markets show no signs of abating. But this does not mean there are not challenges ahead. A series of record highs for global stock indices, combined with lofty valuations, especially for AI-linked stocks, means that investors will be laser focused on Q3 earnings reports, the bulk of US companies will report earnings between now and the end of October.

Q3 earnings season will kick off in earnest next week, but today, we will get Delta and Pepsi earnings for the third quarter. These results will be released later this afternoon and have the potential to impact market mood. Both earnings reports will give us some indication about the strength of domestic demand in the US. The outcome could be binary: a weak set of results could trigger some nervousness across risk assets, while a strong set of results could add to the euphoria in financial markets.

HSBC bets big on Hong Kong’s banking resurgence

The FTSE 100 is worth watching today, as HSBC could come under pressure. The bank fell more than 4% in Hong Kong after it announced that it planned to take Hang Seng Bank private in a bid to get more exposure to Hong Kong’s banking sector after years of economic turbulence. This is a risky move, and the HSBC share price could take a knock during the London session later this morning. This deal weighed on the Hang Seng index, which is underperforming its Asian peers on Thursday.

Copper’s time to shine  

As gold takes a breather, it could be time for investors to look more broadly at the metals space, copper could be the next hot metals trade. The gold price has hogged the limelight in metal’s world of late, however, copper is starting to gain traction. It is closing in on the record high from June 2024 at $11,104. Silver’s 70% gain this year has outperformed gold, this is because silver is an industrial metal that is vital for the production of AI semiconductor chips that power the world’s data centres. Thus, the silver trade is an AI play. Coopper is also vital for the electricity generation needed to power data centres, as it is  a highly effective electrical conductor. Thus, as the AI trade enters its next wave, it makes sense for copper to follow the market higher and there is a growing consensus that copper will be the next metal to surge to record highs.

Geopolitical concerns abate

Geopolitics are driving financial markets once again. The Israel/ Hamas hostage release deal, along with news that President Macron could announce a new prime minister tomorrow, is boosting the mood on Thursday . The oil price is stable on the back of the Israel/Hamas deal. This conflict did not have a big impact on global financial markets, so we don’t expect much pass-through effect, aside from a boost for local assets  including the Shekel and the Israeli stock market today.

French bond yields fell and the spread with Germany narrowed on Wednesday as French political risks receded. French bond yields are little changed this morning, as news that a new PM could be appointed in the coming days has not caused a big market reaction.  There are still a lot of risks associated with France including getting enough political support to pass a budget before year end, and this could limit enthusiasm for French bonds in the short term.