US, European stocks rally on retreating bond yields

Stocks on both sides of the Atlantic rallied as long-term government bond yields eased from their recent highs and amid optimism that artificial intelligence will continue to fuel strong earnings growth, with the likes of Micron Technology and Nvidia seen taking centre stage in the upcoming reporting season.

JPMorgan Chase & Co chief Jamie Dimon warned cyber security risks have surged since the development of Anthropic’s Mythos model, while OpenAI is wooing potential investors in the United Arab Emirates in its latest fund-raising round and Moonshot AI is reportedly eyeing a Hong Kong listing in the first three months of next year.

Paramount closed its US$110 billion takeover of Warner Bros Discovery after last month’s deal with 12 states to keep a minimum level of production in Hollywood, with the new entity now known as Skydance.

And with futures pointing to a small gain for the ASX when trading opens across the Tasman, Australian media reports are speculating that Infratil is weighing a potential sale of telecommunications group One New Zealand’s fibre assets.

New highs

The S&P 500 hit a new record, following the Nasdaq Composite yesterday, as stock markets rallied on both sides of the Atlantic on growing optimism that the latest earnings season would deliver strong growth. FactSet analysis forecasts earnings growth of almost 30% for the S&P 500 in the third quarter, with Nvidia and Micron expected to lead the hot information technology sector.

The S&P 500 was up 0.7% in late trading and the Nasdaq climbed 0.6%, while the Dow Jones Industrial Average increased 0.5%, with Cisco Systems, Caterpillar and Walmart at the top of the leaderboard.

Brent crude oil futures inched up 0.1% to US$100.38 a barrel, having briefly dipped below the US$100 mark, while bond markets rallied, pulling yields down from their latest multi-year highs. The yield on US 10-year treasuries fell 5 basis points to 5.27% at 7am in Auckland, compared with New Zealand’s equivalent note at 5.11%.

European stocks were also stronger, with the UK’s FTSE 100 up 0.4%, Germany’s DAX gaining 0.8% and France’s CAC 40 rising 0.4%.

The spread between French and German government bonds narrowed from its 15-year high after presidential candidate Marine Le Pen outlined a plan to shrink France’s fiscal deficit.

“While many did not view the plan as credible, the market was encouraged by the rhetoric, supporting a further narrowing in French-German bond spreads,” Bank of New Zealand senior markets strategist Jason Wong said in a note. “The backdrop of stronger risk appetite also drove spreads to Germany lower across the rest of the euro area.”

Difficult dynamics

Meanwhile, Bridgewater Associates founder Ray Dalio told Bloomberg TV that US treasuries were vulnerable to a pullback in demand from China and Japan, a problematic dynamic in the market.

Bloomberg reported OpenAI was in talks with UAE funds and BlackRock to participate in its US$30 billion funding round, while China’s Moonshot AI was valued at US$50 billion in its latest fundraising round, with an eye on an initial public offering in Hong Kong in the first three months of 2027.

JPMorgan CEO Jamie Dimon told Bloomberg TV that Anthropic’s Mythos increased cyber security risks and created vulnerabilities that executives weren’t aware of. Still, he said he wasn’t going to get hysterical over whether AI was an existential threat and would simply work to fix it.

Alphabet’s Google agreed to a 20-year deal with Constellation Energy to boost output at 11 nuclear reactors, with the energy company to invest US$4.3 billion in the plants.

Skydance fell 4.8% in its first day of trading under the new name after the Paramount and Warner Bros Discovery deal completed, with chief executive David Ellison targeting US$6 billion of savings.

Australian futures are pointing to a 0.1% gain for the S&P/ASX 200 index when trading opens across the Tasman, while the New Zealand dollar rose to 56.26 US cents at 7am from 56.01 cents yesterday.

No local data are expected today, while milk prices rose at the latest Global Dairy Trade auction, with the GDT price index up 1.2% for an average winning price of US$3,928 a tonne. Whole milk powder prices rose 1.2% to US$3,605/tonne.

Meanwhile, The Australian’s DataRoom reported there was mounting speculation that Infratil was preparing to sell One New Zealand’s fibre assets for as much as $1 billion, coming as Macquarie Capital worked on a potential deal for Christchurch City Council’s Enable Networks.

Reporting by Paul McBeth. Image from Austin Distel on Unsplash.