Week Ahead: AI trade, U.S. inflation and UK GDP

Last week was a rollercoaster ride amid the fallout from the U.S. midterm election results and the Democrats taking control of Congress. Despite an initial rally in equities, gold and Bitcoin following the result, the euphoria was short-lived, as concerns over the AI buildout under a Democratic Congress sent tech stocks tumbling.

This week, attention will remain on the U.S. as investors continue to assess the fallout from the midterm elections and consider where AI stocks go next.

Where next for the AI trade?

The market is concerned that incoming legislation could slow data centre buildouts and tighten oversight of AI infrastructure. These concerns came as Wall Street was already evaluating massive capital expenditure forecasts and worries over the timing of returns on these investments. While the Nasdaq plunged 5.5% on Thursday, its 1.7% rebound on Friday suggests that investors were de-risking and reducing exposure rather than abandoning the AI trade completely.

Neocloud firm CoreWeave, considered a barometer for the AI trade, is set to report one of the week's most consequential earnings releases on Tuesday after the close. The heavily indebted firm needs to explain how it intends to finance its expansion and manage its borrowing costs.

Nebius, another high-profile neocloud firm, reports on Thursday, providing another major test for the AI infrastructure trade.

Ongoing concerns over the AI trade could see the Nasdaq come under renewed pressure.

U.S. inflation comes after NFP’s smashed forecasts

Macro data is also under the spotlight, with U.S. CPI and PPI reports for October. While oil prices fell sharply last week, with Brent down 16%, there was a roughly 15% rally in oil across October, meaning there is potential for an upside surprise in headline CPI, above 4%.

Expectations are for CPI to rise to 3.9% from 3.7% in September, while core CPI will also be closely watched.

The data comes as the market is pricing in an 80% probability of a Fed rate hike in December, following Friday's stronger-than-expected nonfarm payroll report. Around 165,000 jobs were added, well above the 65,000 forecast, and the unemployment rate slipped to 4.1%.

Hotter inflation following strong jobs data could cement December rate-hike expectations, boosting the U.S. dollar, particularly against risk-sensitive currencies such as the Australian dollar.

AUD/USD is testing the June lows. Strong data, combined with ongoing weakness in the tech sector, could see AUD/USD break towards its 2026 lows.

Strong UK GDP could keep GBP/USD supported after the BoE hike

After the Bank of England hiked rates by 25 basis points, in line with expectations, UK GDP data will be released on Friday.

UK GDP is forecast to rise to 0.7% quarter-on-quarter in Q3, up from 0.5% in Q2.

The data comes after the BoE hiked rates by 25 basis points in a more hawkish-than-expected vote and raised its inflation forecast to 4.9% by Q2 2027. The central bank also upwardly revised its growth forecast for this year to 1.6%, from 1.1%.

Strong GDP data could fuel expectations that the BoE will hike rates again, lifting GBP/USD.

The market is pricing in a 56% probability of another 25-basis-point hike in December, with three hikes priced in over the coming year.

Strong GDP data could reinforce those expectations and help GBP/USD maintain its ascending channel.