US equity futures are higher with tech and small caps both outperforming as the screaming AI euphoria drove global indexes to fresh highs after an OpenAI share sale valued the company at an eye-popping $500 billion, catapulting the firm to become the world’s most valuable startup, surpassing SpaceX. As of 8:00am ET, S&P futures were 0.2% higher, trading at a fresh all time high, and Nasdaq 100 futures climbed 0.5%, putting the gauge on track for a fifth straight gain. Pre-market, Mag7 tech are mostly higher led by NVDA (+1.3%) and TSLA (+1.5%); global chipmakers soared and energy REIT Fermi jumped for a second day after its IPO. We have also seen overnight outperformance in both European and Asian markets despite relatively muted incremental news flows: Europe’s Stoxx 600 also hit a record after rising 0.8%, led by an advance of more than 2% in technology shares. In Asia, equities rose past last month’s record close as chipmakers rallied. MSCI’s global index also notched a fresh high. Bond yields are unchanged; USD is lower; Oil is lower, while metals are higher. Today's Initial and Continuing Claims data will be delayed due to the shutdown; we should get the final August Durables/Factory orders prints at 10am.
In premarket trading, Mag7 stocks are mostly higher (Tesla +1.7%, Nvidia +1.3%, Meta +0.7%, Apple +0.4%, Amazon +0.3%, Alphabet -0.09%, Microsoft -0.2%).
The US govt shutdown quietly entered its shutdown for a second day and markets could care less. Strategists noted that past shutdowns have typically had little macroeconomic impact, and judging by recent history, have actually pushed stocks higher. At a White House press conference on Wednesday, Vice President JD Vance said he doesn’t anticipate a long shutdown, adding that layoffs will come if it lasts for days or weeks.
“This is all very much a storm in a teacup,” wrote Michael Brown, a senior market strategist at Pepperstone. “The government has shut down 20 times in the past, and reopened 20 times as well – this time will not be different.”
OpenAI’s valuation soared to $500 billion after current and former employees sold about $6.6 billion of stock. In wave of good news that swept along semiconductor and AI companies, the ChatGPT owner also forged agreements with South Korean firms. Separately, OpenAI also released a social app for sharing AI Videos and inked a deal with Samsung and Hynix to supply its ambitious Stargate datacenter project. Apple has paused a planned overhaul of its Vision Pro headset to focus on developing smart glasses that can rival Meta’s products.
The AI boom has powered global stocks to successive highs, with a resumption of interest-rate cuts and resilient earnings adding to the bullish momentum. For now, investors also see limited risk from the political impasse in Washington, which has triggered the first government shutdown in nearly seven years.
“The tech sector is so large and it’s doing so well,” said Marija Veitmane, senior multi-asset strategist at State Street Global Markets. “The reason the market is prepared to pay those high valuations for the tech sector is really because we don’t see good growth opportunities outside tech.”
In the latest tariff news, the EU plans to hike duties on its steel imports to 50%, according to a draft proposal. As for macro data, the government shutdown and other challenges at the government statistics bureaus means clear signals about the economy are difficult to assess.
A relentless buying spree in US equities dominated quarter-end pension rebalancing, overwhelming projected net selling, according to the trading desk at Goldman Sachs. Bank of America derivatives strategists see scope to use options to bet on further gains for tech. If a 45% rally in the sector since early April looks like a bubble, it probably won’t burst any time soon, they said. Also top of mind is the fast-approaching 3Q reporting season. Earnings outlook momentum remains positive although has trended lower in recent weeks, according to Citi’s earnings revisions index.
Turning to the data, the Bureau of Labor Statistics’ nonfarm payrolls data on Friday will likely be delayed, as well as the weekly initial jobless claims numbers usually due Thursdays. Still, figures from outplacement firm Challenger, Gray & Christmas showed US employers dialed back hiring plans in September, even though they also announced fewer job cuts. Even without the data however, money markets are almost fully pricing a quarter-point Fed cut at the end of the month and see an 80% chance of another in December to support the labor market.
“If you really dig into the labor market data, it’s not just an AI structural story, it’s not just a lower immigration story, you are seeing that cyclical demand weakness,” Kim Crawford, global rates portfolio manager at JPMorgan Asset Management, told Bloomberg TV. “The clearest part to this puzzle is wage growth, there is a lack of wage growth in the US.”
European stocks rally to a new record on a boost for tech and car stocks. Tech optimism is bolstered by OpenAI raising funds to value the firm at $500 billion. The Stoxx 600 is up 0.7% and the Euro Stoxx 50 by 1.3% while a gauge of EM stocks hit the highest since 2021 on the AI-driven optimism. Here are some of the biggest movers on Thursday:
Earlier in the session, Asian shares advanced for a fourth day, turbocharged by technology firms after a deal between OpenAI and South Korean chipmakers brightened the outlook of artificial intelligence. The MSCI Asia Pacific Index rose as much as 1.2%, the most in nearly four weeks. TSMC was among the biggest contributors, along with Alibaba and SK Hynix. The Kospi was the region’s top performer, jumping 2.7% to a fresh record, following Samsung Electronics and SK Hynix’s deal to supply chips to OpenAI’s Stargate project. Benchmarks in Taiwan, Australia and Singapore all climbed over 1%. The tech rally has been underpinning the recent strength of Asian stocks, as investors brushed off geopolitical risks and the first US government shutdown in seven years. An informal survey by Bloomberg also shows that strategists expect the region to outperform the US in the current quarter on attractive valuations and earnings prospects. Chinese stocks listed in Hong Kong jumped as trading resumed after a public holiday. Alibaba was among the lead gainers after JPMorgan boosted its price target by 45%, citing an improved outlook for cloud revenue and growing synergy between its AI and e-commerce operations. Mainland Chinese and Indian markets were shut for a holiday.
In FX, the Bloomberg Dollar Spot Index down 0.2%; kiwi and the yen outperforming.
In rates, treasuries mostly held Wednesday’s gains, with the yield on 10-year notes steady at 4.09%. After Fed rate-cut expectations pulled yields down from January’s high near 4.80%, traders are now contending with a temporary blackout in economic data amid the government shutdown.
In commodity markets, gold extended its record-breaking rally while oil fell for a fourth consecutive day. West Texas Intermediate slid toward $61 a barrel, touching the lowest level in four months as expectations of OPEC+ restoring more idled supply deepened fears of a global glut.
Looking at today's calendar, the 8:30am jobless claims data will be delayed. Factory orders, durable goods and cap goods for August are all due at 10 am New York, but the government shutdown may affect the release of economic data
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A more detailed look at global markets courtesy of Newsquawk
APAC stocks were firmer, with gains across the board following a positive handover from Wall Street, where tech outperformed, whilst the US jobs reports this week look set to be delayed after CR votes failed again on Wednesday, as expected. ASX 200 was propped up by strength in gold and mining names while defensive sectors lagged, with no reaction seen to the RBA Financial Stability Review, which suggested Australia’s financial system remains well positioned to navigate a period of elevated global uncertainty. Nikkei 225 saw upside led by metals and pharma stocks, though gains were capped as the JPY trimmed earlier losses. Hang Seng conformed to regional gains and played catch-up to yesterday’s price action during the National Day closure, though momentum was limited by the absence of Stock Connect, with Mainland China remaining shut until next Thursday. KOSPI outperformed and hit a fresh record high, overlooking stronger-than-expected CPI, with gains driven by surges in SK Hynix and Samsung Electronics after both firms partnered with OpenAI under the Stargate initiative. Sentiment was also supported by news that South Korea and the US agreed on a basic security framework.
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European bourses are mostly higher as the solid start to Q4 continues, Euro Stoxx 50 +1.3%. FTSE 100 -0.1% is the main outlier after the healthcare and energy-led gains seen on Wednesday. From a macro perspective, it is very much a case of more of the same as incremental drivers remain light aside from the overhang of the US government shutdown. Sectors mostly firmer, Tech outperforms after the strength on Wall St.; Autos firmer with heavyweight Ferrari supported by a broker upgrade. Luxury also strong after Brunello Cucinelli numbers, supporting peers.
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DB's Jim Reid concludes the overnight wrap
US markets kicked off Q4 as they ended Q3, with the S&P 500 (+0.34%) reaching another record high despite the shutdown noise and an ADP report showing a contraction in private payrolls. At the same time, fresh fears over the US labour market saw Treasury yields decline sharply as investors priced in more rate cuts. Europe also saw an optimistic session, as positive data helped to push the STOXX 600 (+1.15%) to a new record of its own, finally surpassing its previous peak in early March. Remember that German fiscal stimulus started this week and from my experience of talking to investors around the world in recent weeks, people have largely forgotten about the story, so once you see the impact in the data we might be set for further advances in German and European risk assets all other things being equal.
Meanwhile, the US shutdown remains a huge story, and there’s still no sign of a climbdown from either side. Yesterday the continuing resolution proposal that was earlier approved by Republicans in the House again failed to muster the 60 voters necessary to override the filibuster in the Senate. Just as the previous day, the vote ended five votes short at 55-45 as three Democrats supported the bill while Senator Rand Paul of Kentucky was the lone Republican to vote against. We are unlikely to get another vote today as we have Yom Kippur with the Senate traditionally not sitting given how many of its members celebrate the day.
In terms of expectations, the current view on Polymarket is that it’ll likely be resolved in the next two weeks, with a 34% prospect of the shutdown lasting beyond October 15. Meanwhile, we heard that the administration was using the shutdown to halt federal funding for infrastructure and energy projects in New York City and more than a dozen Democrat-leaning states.
From a market perspective, the most tangible impact is that we won’t get the weekly jobless claims data today, or the jobs report tomorrow. So that’s led investors to put a lot more focus on the private sector data releases, which are generating an outsize market impact as a result. In fact, yesterday we had the ADP’s report of private payrolls, which as we all know pretty much always comes out two days before payrolls, and isn’t too much of a market mover. But this time around, the print caused a significant reaction, as it underwhelmed at -32k (vs. +51k expected), and it raised fears that the next jobs report (whenever we get it) would disappoint like the last two. So investors dialled up their expectations for rate cuts yesterday, with the amount priced in by the June meeting up a sizeable +7.7bps on the day to 90.7bps. And in turn, front-end Treasuries posted a decent decline, with the 2yr yield (-7.4bps) falling to 3.53%, and the 10yr yield (-5.2bps) falling to 4.10%. We are broadly unchanged in Asia trading.
In the latest Fed news, the Supreme Court rejected President Trump's demand to immediately remove Fed Governor Lisa Cook from her post. Cook can thus remain in her post at least until the Supreme Court hears the arguments in the case in January. So that eased some immediate concerns about White House influence over the Fed.
The ADP release initially weighed on equities, but the S&P 500 again recovered as the day went on to close +0.34% higher. In part that was as the weakness in the ADP report wasn’t echoed elsewhere, and the ISM manufacturing came in broadly as expected at 49.1 (vs. 49.0 expected). New orders disappointed (48.9 vs 50.0 expected) but the employment component surprised to the upside (45.3 vs 44.3 expected) and prices paid fell to an 8-month low of 61.9 (vs 62.7 expected). While most of the S&P 500 were lower on the day, specific sectors helped drive the overall advance. Tech outperformance helped the Mag-7 (+0.61%) to a new all-time high, while the healthcare sector (+3.01%) was the outstanding performer in the S&P. That followed news the previous evening that Pfizer had negotiated a 3-year reprieve on pharma tariffs with the White House, leaving investors more confident that US drugmakers would be able to avoid major levies. Pfizer rose +6.79%, with other major pharma companies including Ely Lilly (+8.18%) and Merck (+7.39%) also seeing outsized gains.
Over in Europe, there was an even more robust tone, with equities rising across the board. So that saw the STOXX 600 (+1.15%) and the FTSE 100 (+1.03%) both hit new highs, whilst Spain’s IBEX 35 (+0.41%) moved up to a post-2007 high as well. In part, sentiment was lifted by some robust numbers from the final manufacturing PMIs. So the Euro Area number was revised up three-tenths from the flash print to 49.8, and the German number was revised up a full point to 49.5.
Alongside the PMIs, the latest Euro Area inflation numbers also settled in line with expectations, which eased fears that the ECB might need to pivot more hawkishly. So the flash CPI print was at +2.2%, and the core CPI print at +2.3%, only modestly above the ECB’s target. In turn, that helped front-end sovereign bonds to rally, with yields on 2yr bunds (-0.9bps) and OATs (-1.2bps ) moving lower, though yields were little changed at the 10yr point (+0.1bps for bunds, -0.4bps for OATs).
Italian bonds outperformed (-0.8bps on 10yr) as Bloomberg reported that the country’s draft budget put the deficit at 3% of GDP already this year, matching the EU limit. If realised, that would be the first sub-3% deficit since 2019 before the Covid pandemic. It also contrasts with the French situation, where even former PM Bayrou’s proposals to reach a 3% deficit by 2029 were unable to pass. So that’s coincided with the Italian 10yr yield falling beneath France’s in recent weeks, and yesterday it closed 0.4bps beneath France’s.
Asian equity markets are rallying this morning with the KOSPI (+3.01%) standing out as the top performer, reaching a record high, propelled by significant increases in Samsung Electronics, which is surging +4.50% to approach a six-year peak, and SK Hynix soaring +10.69% to a record high. This is following their preliminary agreement to supply chips to the artificial intelligence leader OpenAI. Elsewhere, the Hang Seng (+1.32%) is also trading significantly higher after resuming trading post holiday helped by a rally in key Chinese internet stocks. Mainland China remains closed. In other markets, the Nikkei (+0.89%) is also climbing along with the S&P/ASX 200 (+1.08%), supported by robust performance in local mining stocks. Meanwhile, trading volumes across the region have remained subdued due to a week-long holiday in mainland Chinese markets. S&P 500 (+0.10%) and NASDAQ 100 (+0.19%) futures are also both edging up.
In early morning data, South Korea’s consumer inflation accelerated in September, rising by +2.1% year-on-year, slightly exceeding the +2.0% forecast, and recovering from a nine-month low of +1.7% recorded the previous month.
To the day ahead now, and central bank speakers include the Fed’s Logan, ECB Vice President de Guindos, the ECB’s Makhlouf and Villeroy, and BoJ Deputy Governor Uchida.