Nasdaq 100 rebounds on AI enthusiasm, but hawkish Fed expectations could limit recovery

U.S. futures are rising after a lower close on Tuesday, amid returning enthusiasm for the AI trade following Anthropic's IPO details and upbeat results from CoreWeave. However, hotter-than-expected U.S. inflation data and rising hawkish Fed expectations, not to mention persistent Nvidia selling, could limit the upside.

While the Nasdaq closed 0.7% lower on Tuesday, Nasdaq futures are over 1.3% higher on Wednesday. U.S. stocks markets are open today, Veterans Day, despite the bond market remaining closed.

CoreWeave and Anthropic spur AI enthusiasm

CoreWeave shares surged 17% overnight after delivering better-than-expected quarterly results and boosting its annual forecast. CoreWeave has been one of the neo-cloud companies at the centre of the AI sector fallout in recent weeks.

Separately, AI is receiving a boost after reports that Anthropic is expected to see strong investor demand for its IPO. The Claude maker is expected to debut on November 18 or 19, with a share price of $70 to $78, taking its valuation to $1.4 trillion.

The listing comes at a precarious time for financial markets, days after the U.S. midterm elections triggered a tech sell-off in a $3.2 trillion rout, which unnerved Wall Street. However, early indications from the roadshow suggest that demand is strong, with leading banks on the deal set to push ahead with a higher share price.

Hotter CPI and hawkish Fed commentary lift Treasury yields

While AI optimism is driving a recovery in the tech-heavy Nasdaq, the upside could be limited as Nvidia sees persistent selling (-11% in 2 days) and Treasury yields rise following hotter U.S. inflation data and hawkish Fed commentary.

U.S. headline CPI rose 0.4% month-on-month in October, down from a 0.6% rise in September, but still ahead of the 0.3% forecast. Meanwhile, core CPI, which strips out volatile items such as food and fuel, was 0.3%, in line with September but ahead of the 0.2% figure expected.

The hotter-than-forecast CPI report comes just days after the nonfarm payroll report smashed forecasts. The combination of a strong labour market and persistent inflation has set the stage for further monetary policy tightening. The question now is: how far will the Fed go?

A 25-basis-point rate hike is widely priced in for December. Following hawkish comments from Federal Reserve Governor Christopher Waller, the market is even pricing in an 10% chance of an outsized 50-basis-point hike in next month. Waller said that he would support a 25-basis-point hike in December, even if October inflation improves, and that a larger 50-basis-point move could be considered should price pressures remain elevated.

He is not the only hawkish Fed speaker. Fed Vice Chair for Supervision Michelle Bowman's comments also leaned hawkish, although her emphasis on the pace and timing points to a preference for more gradual tightening.

Fed speakers will remain in focus over the coming days, with Fed officials Barr, Hammack and Daly due to speak on Thursday, ahead of PPI inflation data on Friday.

Hot inflation and hawkish Fed commentary could lift Treasury yields further. The 10-year yield has already risen to 5%, up from 4.88% before yesterday's CPI data. Rising yields dent demand for riskier assets. Should yields push higher, the Nasdaq may struggle to break above key 200 EMA resistance.

Nasdaq technical analysis

The Nasdaq's recovery from the 26,260 low is testing resistance at the 200 EMA at 28,100, as well as the 38.2% Fibonacci retracement of the move from the 22,840 low to the 31,365 high.

Buyers would need to retake this key resistance to put the price on a firmer footing and turn attention towards the 29,200 resistance zone, the 50 EMA and the 23.6% Fibonacci level. A rise above 30,000 would make the outlook more constructive.

Failure to close above the 200 EMA and the 28,100 resistance could see the bearish trend prevail, turning attention towards 27,100, the 50% Fibonacci retracement and July low, ahead of the 26,000 support.