Markets Over-React to a Contradictory Powell Presser

Mixed tone across assets as trade truce and Tech beats cannot mask AI capex jitters; copper cools; and gold bounces.

Key Takeaways

• Mixed Markets Despite Good News Flow on Tech Earnings: Equity markets are mixed even with this trade truce between the U.S. and China, and the slate of Tech company earnings after the bell yesterday. Investors may be disappointed that the former was less sweeping than expected, and as for the latter, concerns are likely surfacing over the extent of the AI-related capex binge and overcapacity issues.

• BoJ’s Tone Softer Than Expected: There were no hawkish tones coming out of the BoJ press conference and the BoJ firmly believes inflation, even with the weak yen and negative real interest rates, will ease back to 2% next year (as the policy rate was held at 0.5%). At the same time, former BoJ Governor Haruhiko Kuroda is on the wires saying the yen is so undervalued that it should be heading to a range of ¥120-¥130 before long (so we won’t give up hope just yet).

• Market Moves with Thin Breadth: A few words on what happened yesterday. First, it was another session with poor breadth because absent the surge in Caterpillar (+12% in its best day since coming off the Great Recession in 2009 — it has become an AI play), and Nvidia, the Dow would have plunged nearly -500 points! Strip out Caterpillar alone, as it has suddenly become an “old economy” way to play the AI boom, and the Dow was down -450 points!! Only seven of the thirty blue-chip stocks were in the green.