Stocks buoyed by AI earnings – UK CPI ahead

Preview: Stocks edge higher on AI earnings, UK inflation lands, and Meta, Tesla and IBM report.

Markets overview

Risk was modestly positive Tuesday, with US equity benchmarks catching a bid on upbeat quarterly earnings from key AI names, including SpaceX and Super Micro Computer. The S&P 500 added 0.3% but remained below its 50-day SMA around 7,704, and US equity index futures are also higher this morning.

In my view, despite positive earnings, clear uncertainty remains around the AI trade, with funds rotating into other areas of the market. That helped push the Dow Jones Industrial Average 1% higher by the close.

Overnight, Asia-Pac shares followed suit; South Korea’s KOSPI is up 2.5% as of writing, though it is still on the doorstep of retesting YTD lows of 5,262.

A softer greenback is underpinning the risk-on environment. While the USD index fell 0.2% yesterday, the unit continues to find acceptance around neighbouring support near 101.60. In parallel, the US Treasury yield curve flattened as long-end Treasuries attracted strong support, dragging longer-dated yields lower.

In commodities, oil benchmarks finished the session with bids and offers largely even. WTI settled around US$98/barrel, while Brent ended just under US$109. This came despite an initial sell-off on reports that the US and Iran backed a new ‘diplomatic proposal’. However, this quickly proved inaccurate, prompting oil prices to pull back.

UK CPI inflation on deck

The September UK CPI inflation report lands at 6:00 am GMT this morning, and comes on the heels of yesterday’s August jobs report and a week before 28 October Budget.

Headline YY and MM are expected to come in at 3.4% (up from 3.1% in August) and 0.3% (cooling from 0.5%), respectively. On the core side, YY and MM headline inflation are anticipated to reach 2.7% (up from 2.6%) and 0.2% (easing from 0.3%), respectively. YY services inflation will also be closely watched and is forecast to rise to 3.6%, up from 3.4%. Poll ranges run from 3.2% to 3.7% for headline, 2.6% to 3.0% for core and 3.2% to 3.9% for services.

Yesterday’s UK August labour data was relatively firm. The jobless rate ticked down to 4.7% from 4.9% in July. Employment rose by 102k, up from 67k. HMRC payrolls rose 13k in September, with the prior revised up. Regular pay (ex. bonus) growth edged up to 3.7% (prior revised to 3.6%), total pay slowed to 3.7% from 3.9%, and private sector regular pay rose to 3.0%, up from 2.9%.

My view of the BoE remains unchanged. While more than four rate hikes are priced in and I believe the BoE will hike the bank rate next month, economic data does not justify such a hawkish rate path. Core inflation is still reasonably contained, second-round effects are limited so far, and GDP growth is modest. You will also likely recall that BoE’s Pill has voiced scepticism about pricing in four hikes.

With so much priced in, a beat mostly confirms the path, while a miss, especially in services, leaves room for an unwind. Therefore, I think a miss could generate more volatility than a beat. Traders may look to long EUR/GBP and the FTSE 100 if a miss hits the wires.

Earnings in focus

It is a busy earnings day across tech, telecoms, healthcare and industrials.

Meta is expected to show slower revenue growth as it pours money into AI features, so investors will be watching its spending and free cash flow after launching its new Muse Wonder models to take on Anthropic and OpenAI.

Tesla is forecast to see revenue dip about 1%, even as Q3 deliveries jumped on a rebound in Europe.

IBM is expected to post roughly 3% revenue growth, with investors hoping momentum will return after last quarter’s warning that AI infrastructure spending was holding up software and mainframe sales.