New York open: Big tech powers a repricing reboot

Big Tech just shot the markets full of steroids—Microsoft surged 8% and Meta jumped 5% on blockbuster cloud and AI results, underscoring that the silicon super-cycle still drives this rally even as tariff headlines smolder in the background. Following Alphabet’s post-tariff rebound, Apple and Amazon reporting after the bell Wednesday has turbocharged the tech earnings tide, sending Nasdaq and S&P futures 1–1.5% higher before the bell Thursday.

The magic isn’t just in the numbers—it’s in the optics. The Nasdaq, still nursing a 10% YTD slump, has already clawed back every penny lost since April 2’s tariff shock. The S&P 500 and those ‘Magnificent Seven’ megacap plays are flirting with full Restoration Day recoveries, underscoring how AI spend and cloud migration are trumping trade-war jitters.

Trade-war clouds haven’t evaporated, but the silver linings are getting louder. A Beijing-linked social account leaked that Washington dialed for face-to-face tariff talks—hinting at thawing rhetoric on Trump’s 145% bilateral levies. Meanwhile, a U.S.–Ukraine minerals pact quietly clears the runway for American firms to snap up critical feedstocks and bankroll Kyiv’s rebuild—another geopolitical win fueling risk appetite.

On the macro front, the data deck is downright schizophrenic. That Q1 GDP –0.3% headline was technically a downside miss versus the consensus –0.2% call, but it masks an upside surprise in the underlying detail once you strip out the pre-tariff import surge. Core domestic demand—real final sales to private buyers—clocked in at roughly +3%, beating forecasts. So on a headline basis it was a soft miss; underneath, though, spend and capex held up better than feared.

One thing’s beyond debate: payrolls sputtered and core PCE finally softened enough to send the hawks scurrying back to their nests. The Fed’s dot-plot is barely clinging to “higher for longer,” while futures now price in north of 100 basis points of cuts by year-end—kicking off as soon as mid-summer. Unsurprisingly, 10-year Treasury yields have folded into three-week lows as markets double-down on dovish repricing, bracing for the next Fed pivot.

And for the consumer scorecard? Retail spend remains surprisingly firm, while U.S. crude has rolled back toward four-year lows—settling around $57/bbl and shaving another leg off inflation worries.

Bottom line: Don’t mistake this for a broad reflation trade. Today’s pop is tech-driven, not tariff-forgiven. But with AI capex still on fire, cloud deals stacking up and geopolitical risk ticking down, this rally has legs—at least until the next data storm or trade headline cuts the tape.

And don’t forget—if you’re playing the S&P 500 (and I hope you are), you’re navigating a minefield of razor-thin liquidity. Micro-orders aren’t just nibbling at the tape; they’re triggering 25–30 point ripples. With top-of-book depth stuck under $3 million (versus $13 million norms) and the ten most active names trading like sub-penny flyers, every tick feels turbocharged. Trade size matters more than ever—one big bid or offer can vault the index, so size up your risk and stay nimble.

Magma vs. smoke: AI spend powers on while tariff fear flickers

Let’s give the data the benefit of the doubt: sure, Trump’s April-2 tariff firecracker flashed headlines, but the real engine roaring beneath the tape is the AI capex boom. Microsoft just reported 20% Azure growth, and along with Meta, is pledging ever bigger server farms—this silicon supercycle is the magma under today’s market; the tariff circus is just the smoke.

Look at Q1 GDP—our “before” snapshot—and you’ll see a surprise to the upside even with headline growth printing –0.3%. Strip out that pre-tariff import binge, and domestic demand is humming: real household spending jumped 1.8%, and real final sales to private demand punched in at 3%. Sentiment surveys may read like a blues album, but check the wallets—consumers are still swinging.

Capex? It’s off the charts—a 22% annualized moon-shot, almost entirely in computer hardware. Part of it is pull-forward ahead of the tariff tax, part is the AI compute arms race. Either way, order books and shipping docks are bulging with silicon. Yes, inventories swelled too, but let’s call that phantom GDP until Q2 demand chews through the shelves.

The fly in the ointment remains inflation. Core PCE eased but still runs a sticky 2.6% annualized—enough to keep the Fed’s finger off the cut trigger next week. Euro-dollar futures are pencilling in four trims by year-end; I’m betting on two at most unless summer data roll over.

Now for the “after” shot: consumer momentum looks intact, but the tariff invoice hasn’t hit the P&L. Early-May shipping manifests show China-to-U.S. box bookings down over 40% year-on-year. Once that imported inventory clears customs, corporate treasurers face a tough choice: absorb the duty, pass it through, or scratch the SKU altogether. That’s when the real growth drag prints—and when the Fed finally gets a read on demand destruction versus pure cost-push. I’ve circled late-July data drops as the inflection window—either the inventory mirage evaporates, or we get a hard-drawdown recession scare.

Europe’s industrial bounce just hit a steel wall

We’ve steered clear of long EUR/USD since trimming our euro exposure on April 22 just above 1.1500—and in hindsight, I should’ve both cut and faded the tape sooner. When you fixate on dollar selling, you can miss those juicy tactical re‐entries. But let’s be honest: the euro’s rally doesn’t look like the brightest bulb in the currency chandelier right now. Europe’s long-awaited industrial comeback has been punted down the calendar by Washington’s tariff tantrum. Just as EU factories were shrugging off a two-year malaise, April’s blanket 10 percent duties—and 25 percent levies on steel, aluminum and autos—landed like a penalty kick, freezing order books from Stuttgart to Seville. That 20 percent “reciprocal” slug is looming on a 90-day countdown, a Damocles sword over every cap-ex committee in the bloc.

February’s data told the sugar-rush story: EU output hit its freshest high since last August as U.S. buyers front-loaded inventories ahead of the tariff wall. Now that buzz is fading fast. Container bookings out of Rotterdam and Hamburg have rolled over, and PMIs, export-order indices and freight quotes are flashing an April-to-June air pocket. Our back-of-the-envelope calc pegs a sustained 20 percent trade tax at shaving roughly 0.3 pp off euro-area GDP over two years—turning what had looked like a H2 acceleration into a sideways grind.

Meanwhile, Europe’s macro scoreboard is losing ground. Industrial production sits about 5 percent below its 2023 peak, flat-lining against a U.S. print that’s holding steady and a China series that’s up 13 percent. Energy-shock hangovers, war-premium input costs and now tariff risk have locked Europe’s manufacturing multiple in value-trap territory. Until the tariff fog lifts, U.S. demand won’t rev back up; those front-loaded shipments will reverse, squeezing euro-zone factories just as order pipelines thin.

Where’s the upside? Think 2026. German reshoring cap-ex, EU-wide defense budgets and the green-tech build-out are the slow-burn fuel that should finally trigger a fresh capital-goods cycle once policy clarity returns. If Washington blinks—or corporates finish repricing duties into final prices—we could see a broad inventory-rebuild bid, surging machine-tool order books, and a long-awaited earnings pop in Europe’s industrial bellwethers. Until then, the tactical play is to fade any fleeting tariff-relief rally, cherry-pick names levered to intra-EU defense spend, and keep powder dry for the growth reset that really kicks off two years out.