Markets have spent two days deciding that last week’s AI panic went too far, and they have done it with some gusto. Wall Street had its best day since April, Seoul rallied so hard overnight that the exchange briefly switched off computer buying, and oil kept sliding on hopes of a quieter Middle East. The catch is the timing. At 13:30 UK time the US publishes October inflation, the last reading before a Federal Reserve meeting that markets already expect to raise rates, and a relaxed market is the easiest kind to surprise.
The 60-Second Market View
The S&P 500 rose 2.35 per cent on Monday to 7,549.94, its strongest session since 8 April. The Nasdaq Composite gained 2.74 per cent to 25,253.14, the Dow added 2.15 per cent to 52,389.75 and the small-cap Russell 2000 did best of all, up 3.15 per cent. Wall Street’s fear gauge, the VIX, fell by more than a fifth to 19.92. A chip index that lost more than 12 per cent last week jumped 6.9 per cent, with Nvidia the only faller in it.
Asia picked up the baton. Japan’s Nikkei is up about 2.5 per cent near 60,250, South Korea’s KOSPI is up close to 4 per cent around 5,200 and Taiwan’s Taiex has added about 2 per cent. China was quieter, with Hong Kong up a fraction and Shanghai barely moved. US futures have gone flat after the run, with Nasdaq 100 futures slightly lower. Brent is down about 1 per cent near $91.60, gold is steady around $4,120, and sterling is holding near $1.3450.
What Happened Overnight?
The rebound was led by exactly the shares that were thrown out last week. In Seoul, Samsung Electronics and SK Hynix rose roughly 5 and 6 per cent, and the KOSPI’s early surge of more than 5 per cent triggered the exchange’s “sidecar” brake, which pauses programme buying for five minutes. In Tokyo, SoftBank jumped around 15 per cent ahead of its results later today, with chip equipment makers Tokyo Electron and Advantest and memory maker Kioxia also sharply higher. Lower oil helped too: Korean Air and Asiana rallied more than 11 per cent.
China reported October exports up 35.2 per cent on a year earlier and imports up 41.6 per cent, with demand for AI hardware still doing a lot of the lifting. Its trade surplus for the first ten months of the year has passed $1 trillion again, a month sooner than last year. That is a strong number for China and an awkward one for anyone in Washington already looking for reasons to get tougher on trade.
In Japan, the Bank of Japan’s summary of its October meeting read hawkishly. Board members agreed underlying inflation is now at the 2 per cent target, and the argument has moved on to how quickly to raise rates rather than whether to. One member said the neutral rate is likely “considerably above 1 per cent”, which matters because the policy rate is 1.25 per cent today. Economists polled by Reuters expect a move to 1.5 per cent in December.
The Big Story: A Relief Rally Walks Into the Inflation Exam
Monday’s move had three engines. The first was oil: Brent fell 5.85 per cent to settle at $92.57 after President Trump said fresh strikes on Iran were “highly unlikely” while talks progress, and cheaper energy takes some pressure off inflation everywhere. The second was positioning. JPMorgan’s Dubravko Lakos-Bujas described last week as the largest unwind of momentum trades against the market in about 40 years, and when selling is that crowded, the snap-back tends to be violent. The third was simple bargain hunting in chip shares that had been marked down hard on fears a Democrat-led Congress will slow data centre building.
What did not join in was Nvidia. The stock fell 4.2 per cent to its lowest close since 7 April as its board investigates whether chief executive Jensen Huang was targeted by a suspected Chinese intelligence effort. Strategists in Tokyo are treating that as a company problem rather than a sector problem, and the rest of the chip complex agreed on Monday. That is a reasonable first read, but it is a story with a political thread, and it has not finished.
Now the bill arrives. Economists expect US consumer prices to have risen 0.3 per cent in October and core prices, which strip out food and energy, 0.2 per cent. That would be a step down from September’s 0.6 and 0.3 per cent. There is a quirk this time: the US cannot publish annual inflation rates because last year’s government shutdown left no October 2025 index to compare against, so the monthly figures carry all the weight.
Money markets put roughly an 80 per cent chance on a quarter-point Fed hike on 9 December. Bank of America’s economists think only an “indisputably soft” 0.1 per cent would put that in doubt. So the risk is lopsided. A soft number mostly confirms what the rally already assumed, while a core reading of 0.3 per cent would firm up December, push short-dated Treasury yields and the dollar higher, and test a stock market that has just priced out a lot of fear in two sessions.
The Bank of England added its own note of caution on Monday. Governor Andrew Bailey said the returns from AI may be good but could “take longer to be realised than predicted”, using Edison and electricity as his example. That is not a forecast of a crash, but it is a reminder that the people who set interest rates are watching the AI trade’s valuations as closely as traders are.
FX
The dollar index is flat near 101.6 after sliding on Monday as oil fell and risk appetite returned. Sterling is holding around $1.3450, well up from last week’s lows, and the euro is near $1.1230. The yen is little changed near 157.9 per dollar despite the hawkish Bank of Japan summary, which says a December hike is largely priced already. For sterling, today’s interest is in what three Bank of England speakers say about a follow-up to last week’s hike to 4 per cent, with markets putting just over even odds on another move on 17 December.
Equities
The FTSE 100 rose 1.02 per cent to 10,782.87 on Monday, while Germany’s DAX gained about 1.7 per cent and the Euro Stoxx 50 nearly 2 per cent. Europe should open into a firm Asian session but flat US futures, which leaves it with little fresh fuel until the afternoon. Watch SoftBank’s results as a read on how investors are pricing its OpenAI exposure, and watch whether Nvidia can stabilise when the US opens. A broad rally led by small caps is healthy; a rally that leaves the largest AI name behind is one to keep an eye on.
Bonds
Treasuries barely moved during the equity surge. The 10-year yield is about 4.87 per cent and the two-year near 4.56 per cent, which tells you the bond market is still braced for a hike and was not sold on Monday’s relief. UK 10-year gilt yields are around 5.14 per cent and the 30-year near 5.59 per cent. Japan’s 10-year yield is about 2.69 per cent. Today’s US inflation figure will move the two-year more than anything else this week.
Commodities
Brent is near $91.60 and US crude near $85.80, both down about 1 per cent after Monday’s heavy fall. Brent touched about $90.63 on Monday evening UK time before steadying, so $90 is now the obvious line. Gold is holding around $4,120 an ounce and silver near $53, both well supported after Monday’s gains on a softer dollar. Copper is steady near $6.35 a pound, helped by China’s strong import numbers.
Today’s Economic Calendar
07:00 UK: Norway October inflation. A firm underlying reading could revive talk of a Norges Bank hike in December and is a useful read on how energy costs are feeding through in Europe.
08:30 UK: Bank of England Deputy Governor Sarah Breeden speaks. She backed last week’s hike but said current financial conditions were sufficiently restrictive for now, so any change in tone would matter for sterling.
09:00 UK: Fed Governor Christopher Waller speaks in London. He has said more hikes are likely, so traders will listen for whether he leans on December before the inflation data lands.
12:30 UK: Bank of England Deputy Governor Clare Lombardelli speaks. She has written that there is likely to be a case for a further rise in the near term.
13:30 UK: US October consumer prices. The big one. It is the last inflation reading before the Fed meets on 9 December and will set the tone for yields, the dollar and the stock rally.
15:50 UK: Dallas Fed President Lorie Logan speaks. She has called for at least two more rate rises, so her reaction to the inflation figure will be watched closely.
18:30 UK: Bank of England Chief Economist Huw Pill speaks. He has said a single hike is unlikely to be enough.
20:30 UK: Fed Vice Chair for Supervision Michelle Bowman speaks. She said in October she felt no urgency to act, so a shift in her tone would be a strong signal.
Levels Traders Are Watching
These are reference points, not predictions. For the S&P 500, 7,500 is the round number Monday’s rally reclaimed, and holding it after the inflation data would say the bounce has foundations. Nasdaq 100 futures are working around 28,000. Tokyo strategists say investors are reluctant to push the Nikkei through 61,000. For oil, Brent’s $90 area is the line after Monday’s low near $90.63. Sterling’s $1.34 handle is the level its recovery is built on, and gold’s $4,100 area remains the floor its rebound is working from.
Where This Leaves Us
Two strong days have repaired a lot of last week’s damage, but the repair has come mostly from cheaper oil and from sellers running out of things to sell, not from any new evidence that the AI spending story is safe from Washington or that inflation is beaten. The market has relaxed a long way in a short time, with the VIX back under 20, just as it faces the one release that can change the Fed’s December calculation.
That view would change if core inflation comes in at 0.2 per cent or lower and two-year Treasury yields fall, which would give the rally a proper footing, or if Brent breaks below $90 on a confirmed Iran agreement. It would sour quickly on a 0.3 per cent core reading that pushes yields and the dollar higher, or on more damaging news from the Nvidia investigation. The markets to watch today are US two-year yields, Nasdaq 100 futures, Nvidia, Brent and sterling. For beginners, the lesson is that a market which has just priced out fear has less cushion against a disappointment, so the data that matters most often lands when everyone feels most comfortable.
If you want to find out how you would handle a day like this, where a calm market meets a big data release, and where your own strengths and blind spots as a trader really sit, take the free Samuel & Co Trading Trader Assessment.
