Equities: AI rally and CPI relief lift US stocks – Deutsche Bank

Deutsche Bank strategists report that equities, particularly US stocks, have benefited from an AI rally and reduced expectations for further Federal Reserve rate hikes following a US CPI data release. Treasuries in the front-end market showed strength, while volatility fell to its lowest level since January. AI-related stocks and broader US indices continued to gain from the favorable inflation situation.

The S&P 500 closed just 0.12% below its August 7 record high, with its equal-weighted equivalent reaching a new high. The Nasdaq and Russell 2000 also saw significant gains, while the Mag-7 underperformed. The VIX, a measure of market volatility, dropped to its lowest level since January, suggesting a potential August lull in market activity.

Semiconductor stocks led the rally, with the Philadelphia Semiconductor Index up 2.49%. The index has gained 75.1% year-to-date and 18.7% from its low on July 29, though it remains 15.3% below its June record high. CoreWeave and Super Micro stocks surged following positive outlooks, while Nebius' stock jumped 34.14% due to a remarkable year-on-year revenue growth of 454%.

Meanwhile, Tencent reported a 11% sales growth in China, but its shares fell 3.81% due to weaker-than-expected profits amid increased AI capital expenditures.

Across Asia, subdued US CPI data and continued tech rallies propelled indices forward. South Korea's KOSPI recovered from late July lows, entering a technical bull market. The Nikkei 225, CSI 300, and Shanghai Composite also advanced, while the S&P/ASX 200 saw a slight pullback.

European markets showed weaker performance, with the Stoxx 600 falling 0.16% after seven consecutive gains. The CAC 40, DAX, and FTSE 100 all slipped by 0.46%, 0.23%, and 0.10%, respectively. Despite the European market's softer outlook, all four major indices remain within 1% of their recent highs. Meanwhile, GBP/USD climbed toward a three-month peak near 1.3560, and EUR/USD reached the upper 1.1500s for the first time since mid-June.

Gold rebounded close to $4,400 per troy ounce, driven by weakening US Dollar expectations and easing concerns over an imminent Fed rate hike. Central bank intervention in the Middle East remained a point of uncertainty.