AI Risk Bid Lifts Wall Street; Dollar Mixed as Crypto Slides on ETF Outflows
US equities rallied sharply on Monday as investors piled back into large-cap tech on renewed AI optimism and lingering hopes of 2025 Federal Reserve rate cuts. The Nasdaq Composite jumped 2.6% and the S&P 500 rose 1.6%, with Alphabet climbing 5% on fresh Gemini 3 headlines. Risk appetite improved across cyclicals, while the US dollar ended the New York session mixed against G10 peers.
Wall Street extends AI-led advance – Alphabet’s surge helped reflate the broader AI complex, with gains rippling through software and semis and reinforcing the market’s narrow leadership profile. – Stock-specific momentum was evident: Sonos gained 4.1%, United Airlines rose 3.5%, and RE/MAX advanced 3.7%. – Rate-cut expectations continued to underpin equity multiples, with traders leaning into growth exposure as near-term US economic prints remain consistent with disinflation. Liquidity flows favored megacaps, tightening breadth but sustaining the rally.
FX: Dollar ends mixed as risk tone improves – The greenback closed the day mixed, reflecting a tug-of-war between improved risk sentiment and cautious positioning ahead of upcoming Fed communication. – Risk-sensitive currencies drew support from the equity rally, but overall FX volatility stayed contained as markets await fresh policy signals. – Traders are monitoring US data and Fedspeak for clarity on the timing and depth of 2025 easing, with market-implied probabilities still skewed toward cuts over the next year.
Energy: Demand narrative firm amid investment concerns – Middle East energy discussions emphasized structurally strong oil demand—projected above 100 million barrels per day through 2040—versus persistent underinvestment in supply. – AI-driven efficiency gains were cited as a mitigating factor on the demand side but not sufficient to offset capacity constraints without higher upstream capex. – The demand-supply messaging supported sentiment across energy equities, though spot crude pricing was steady into the close.
Trade policy: Tariffs squeeze apparel margins – US tariffs are biting the fashion sector, with an average rate near 36% cited for the industry. Despite the pressure, Levi Strauss reported roughly 7% sales growth and raised its outlook, signaling resilient top-line demand even as cost headwinds persist. – Investors remain focused on pricing power and inventory discipline to preserve margins into 2025.
Crypto: Bitcoin retreats on ETF outflows – Bitcoin fell 29% from its recent peak as spot ETF outflows reached $3.5 billion and stablecoin market capitalization declined by $4.6 billion, signaling a tightening of on-chain liquidity. – The setback reflects reduced risk tolerance in digital assets and a reset in speculative positioning. Traders are looking to the Fed’s policy trajectory and ETF inflow momentum as the next catalysts for direction.
Policy watch: UK seeks Budget endorsements; US-Venezuela angle – The Financial Times reported that the UK Treasury asked banks to provide prominent public endorsements of this week’s Budget, a rare push that highlights the government’s desired optics on credibility and market confidence. – In the US, Donald Trump has told advisers he plans to speak directly with Venezuela’s Nicolás Maduro, though no date has been set. Markets will watch any dialogue for implications on sanctions policy and oil flows.
Market Highlights – Nasdaq +2.6%, S&P 500 +1.6% on AI-led momentum and dovish policy expectations – Alphabet +5% on Gemini 3 headlines; SONO +4.1%, UAL +3.5%, RMAX +3.7% – USD finishes mixed across majors; FX volatility remains contained – Oil demand outlook >100 mbpd through 2040 underscores supply risks amid underinvestment – Bitcoin down 29% from highs; $3.5B ETF outflows and $4.6B stablecoin drawdown weigh on sentiment – UK Treasury reportedly pushing banks to endorse Budget publicly
What’s next for traders? – US macro: Watch upcoming Fed commentary and key data for confirmation of disinflation and the pace of 2025 easing. – Energy: Supply-side updates from Middle Eastern producers and investment plans remain central to price stability. – Crypto: ETF flow dynamics and USD liquidity will steer near-term direction. – UK policy: The Budget’s reception and bank statements may influence gilt and sterling narratives, even if immediate price impact is limited.
Questions and answers Q: What drove the Nasdaq’s outperformance? A: Renewed AI enthusiasm—highlighted by Alphabet’s 5% rally—and persistent expectations for 2025 Fed rate cuts boosted growth stocks and risk appetite.
Q: How did the dollar trade into the close? A: Mixed. Appetite for risk supported select high-beta currencies, but broader FX markets stayed rangebound as investors await clearer guidance from the Fed.
Q: Why is Bitcoin under pressure now? A: Net outflows from spot ETFs totaling $3.5B and a $4.6B contraction in stablecoin market cap signaled weaker liquidity and positioning, triggering a 29% drawdown from recent highs.
Q: What’s the significance of UK banks endorsing the Budget? A: Visible backing could bolster policy credibility and sentiment. Any impact on gilt yields or sterling will depend on the Budget’s fiscal path and market buy-in, BPayNews notes.
