Trick or threat?

US markets fell yesterday as investors questioned the wave of higher AI spending pledged by Big Tech, even though every major name that reported this week beat lofty expectations on earnings, revenue and cloud growth. The Nasdaq 100 dropped nearly 1.5%, with Microsoft down almost 3%, and Meta plunging 11%, breaking below its 200-day moving average without finding enough dip buyers to reclaim it. Alphabet opened at an all-time high but spent the session giving back early gains to close with a modest 2.45% post-earnings rise.

The selloff likely reflects the broader macroeconomic backdrop, as Treasury yields climbed after Federal Reserve (Fed) Chair Powell said earlier this week it’s “not clear” another 25 bp cut will come in December.

The good news: Apple and Amazon extended the streak of better-than-expected results after the bell. Apple — not the market’s hottest AI play — beat forecasts on strong iPhone sales and upbeat holiday guidance. Amazon delivered its fastest AWS growth since 2022, a relief for investors who had questioned its – and its peers’ - heavy data-center spending. In reality, these firms are racing to meet demand that, according to Microsoft, is running well ahead of their capacity. With AI applications expected to double computing needs every 9 to 18 months, supply is struggling to keep pace. That makes today’s spending look aggressive — but necessary. Until we see signs of oversupply, there’s little reason to worry about capex excess.

Overall, Big Tech wrapped up the earnings season on solid footing despite mixed price reactions — largely a Fed-driven sentiment issue rather than a fundamental one. Nasdaq futures are higher this morning, buoyed by Amazon’s 13% post-earnings jump — the biggest among the “Magnificent Seven” this week.

Today attention turns to the oil majors, with Exxon Mobil and Chevron reporting earnings expected to show modest year-on-year declines as softer oil and gas prices bite. Both face the same test: protecting profitability and capital discipline in a lower-price environment while reassuring investors about cash returns and production outlooks. Recent tactical longs built on renewed Russia-related tensions are now taking profits. WTI crude has found support near $60 a barrel, but if US output keeps recovering, there’s a greater risk of a break below $60 than a rebound above it.

Meanwhile, the US dollar has been recovering since Powell’s comments dampened hopes for a December rate cut. The EURUSD trades below 1.06 after the European Central Bank (ECB) held rates steady as expected, with Lagarde saying policy is “in a good place.” Policymakers sounded slightly more upbeat, citing easing downside risks as trade tensions with the US subside, while keeping their inflation outlook broadly unchanged. Traders now price in no further rate cuts over the next year. Still, despite the ECB’s slightly hawkish tone, the euro’s top-heavy formation may persist if the Fed turns more hawkish — since the ECB’s pause was priced in, while the Fed’s stance surprised markets. Today’s focus in Europe will be the October preliminary inflation data, expected to confirm slowing price pressures across the region, which could further strengthen the bears’ hand.

Across the Channel, sterling came under pressure this week, with the GBPUSD testing the 38.2% Fibonacci support of its year-to-date rally. A decisive break would push the pair into a bearish consolidation zone, raising the risk of a deeper pullback — consistent with fundamentals as the Autumn Budget looms and UK growth prospects remain subdued.

In Japan, the USDJPY climbed to 154.45 on dovish shift in BoJ expectations due to the new PM Takaichi’s explicit preference for a soft monetary policy.

In metals, gold is heading for a second consecutive weekly loss, though selling pressure has eased despite higher yields, a firmer dollar and encouraging trade news. Volatility remains elevated, suggesting room for a short-term pullback before stability returns. But the long-term picture is unchanged: surging sovereign debt across developed economies, fragile major currencies and sustained central-bank gold buying continue to support appetite for gold — and other hard assets — over the medium to long term. In that context, precious, industrial,and rare-earth metals should remain in demand.