AI optimism lifts Nasdaq 100, but hawkish Fed expectations could restrain the rebound

Stronger-than-expected U.S. inflation and increasingly hawkish expectations for the Fed threaten to curb gains in U.S. futures, alongside continued selling of Nvidia. Futures are nevertheless advancing after Tuesday's lower close, as details of Anthropic's IPO and positive CoreWeave results renew interest in the AI trade.

A 0.7% decline in the Nasdaq on Tuesday has given way to a rise of over 1.3% in Nasdaq futures on Wednesday. Although the bond market is shut for Veterans Day today, U.S. stock markets remain open.

AI sentiment strengthens on CoreWeave results and Anthropic IPO prospects

Quarterly results ahead of expectations, coupled with a raised annual forecast, drove an overnight surge of 17% in CoreWeave shares. The company is among the neo-cloud businesses that have been at the heart of the AI sector's difficulties in recent weeks.

Reports that investor demand for Anthropic's IPO is expected to be strong have given the AI trade another source of support. A debut on November 18 or 19 is expected for the Claude maker, with shares priced at $70 to $78 and a resulting valuation of $1.4 trillion.

Financial markets remain unsettled as the listing approaches. Only days earlier, the U.S. midterm elections had prompted a tech sell-off, part of a $3.2 trillion rout that unnerved Wall Street. Despite that backdrop, initial indications of strong demand from the roadshow suggest the leading banks on the deal are set to go ahead with a higher share price.

Treasury yields climb as inflation and Fed rhetoric turn hawkish

The tech-heavy Nasdaq is recovering on renewed confidence in AI, but two pressures could hold back further gains: ongoing selling in Nvidia (-11% in 2 days) and higher Treasury yields. The latter have followed stronger U.S. inflation readings and hawkish remarks from the Fed.

At 0.4% month-on-month, October's U.S. headline CPI rise was below September's 0.6% increase but above the forecast of 0.3%. Core CPI, which excludes volatile items such as food and fuel, registered 0.3%. That matched September's reading while exceeding the expected 0.2%.

This upside surprise in CPI follows a nonfarm payroll report, released just days earlier, that substantially outstripped forecasts. Together, persistent inflation and a robust labour market have laid the groundwork for further monetary tightening. How much further the Fed will tighten is now the central question.

Markets already widely price in a December rate increase of 25 basis points. Hawkish remarks by Federal Reserve Governor Christopher Waller have led them to assign a 10% chance to a larger 50-basis-point rise next month as well. Waller would support a 25-basis-point increase in December even with an improvement in October inflation, he said. Should price pressures stay elevated, he added, a larger move of 50 basis points could be considered.

A hawkish message has also come from Fed Vice Chair for Supervision Michelle Bowman. Her remarks suggest a preference for a more gradual approach to tightening, however, given her emphasis on its pace and timing.

In the coming days, comments from Fed policymakers will continue to draw attention. Thursday brings scheduled speeches from Fed officials Barr, Hammack and Daly, followed by Friday's PPI inflation data.

The 10-year Treasury yield now stands at 5%, compared with 4.88% before yesterday's CPI figures. Further upward pressure could come from elevated inflation and hawkish Fed remarks. As higher yields erode demand for riskier assets, another increase could make it difficult for the Nasdaq to move beyond crucial resistance at the 200 EMA.

Nasdaq rebound tests key technical resistance

Resistance at 28,100, where the 200 EMA lies, is being tested as the Nasdaq rebounds from its 26,260 low. The recovery is also testing the 38.2% Fibonacci retracement of the climb from the 22,840 low to the 31,365 high.

For the price to gain a stronger footing, buyers would have to reclaim this important resistance. Attention would then shift towards the resistance zone at 29,200, the 50 EMA and the 23.6% Fibonacci level. Moving above 30,000 would improve the outlook.

Without a close above the 200 EMA and resistance at 28,100, the bearish trend could remain in control. The next focus would then be 27,100, the 50% Fibonacci retracement and July low, followed by support at 26,000.