MORNING BID AMERICAS-Stocks catch a break after bruising AI selloff

(The opinions expressed here are those of the author, a columnist for Reuters.)

By Mike Dolan

Dec 15 - What matters in U.S. and global markets today By Mike Dolan, Editor-At-Large, Finance and Markets U.S. stock and bond markets caught a break on Monday after another unnerving AI-related shakeout late last week, with attention switching to Tuesday’s big payrolls report and China’s latest sweep of disappointing economic readouts.

As Wall Street enters the last full trading week of the year, the mood surrounding the dominant artificial intelligence theme could hardly be shakier. Expensive tech stocks were hit with a one-two volley of disappointing news from Oracle and Broadcom last week, with shares in the two AI bellwethers sliding 18% and 11% respectively on Thursday and Friday - and dragging kingpin Nvidia down 3% on Friday, too.

Nvidia regained some ground on Monday after it told Chinese clients it is evaluating adding production capacity for its powerful H200 AI chips as orders exceeded its current output level, according to Reuters’ sources. And Micron is due to report earnings later in the week.

But there appears to be considerable sector rotation afoot in the wider market as the year comes to a close. The tech pullback saw the Nasdaq lose 1.6% on Friday, but the Dow Jones Industrials index gained 1% and hit a record high during the day.

U.S. index futures were higher across the board into Monday’s open, with some relief coming from easier Treasury yields overnight.

Even as Big Tech swooned on Friday, long-dated Treasuries fell too - with the 30-year bond yield hitting 3-month highs and the 2-30 yield curve gap also steepening to the widest since September. While yields fell back somewhat overnight, bonds are navigating numerous factors into yearend - not least the critical and long-delayed November payrolls report on Tuesday. But Treasuries also have to contend with a likely Bank of Japan interest rate rise on Friday, which will have important implications for Japanese and global bond markets, and a 20-year U.S. bond auction on Wednesday.

And the latest political signals about the next Federal Reserve chair from next May were also being digested. Late Friday, President Donald Trump told the Wall Street Journal that he has narrowed his search for a new Fed chair to two people - former Fed Governor Kevin Warsh or National Economic Council Director Kevin Hassett. “The two Kevins are great,” he said.

The Polymarket betting site, which had made Hassett clear favorite prior to the interview, cut his chances of getting the Fed job to 51% from 75% prior to the Trump comments. Warsh’s chances were lifted to 40% from 14%.

The dollar index held broadly stable, despite another sharp loss against China’s offshore yuan. The yuan hit its strongest level in more than a year even after yet another series of weakening and below-forecast updates on China’s industry, retail and investmentfor November. What’s more, house prices extended their slump and property sector nerves were jangled again by fears about a missed debt payment by state-backed developer China Vanke.

With inevitable hopes of another government stimulus stirred by the weak data, China’s stocks fell on Monday - but less than tech-hit markets in Tokyo and Seoul. European markets were firmer, with Britain’s FTSE100 outperforming as the latest Bank of England interest rate cut is now widely expected on Thursday. The European Central Bank is also meeting - but will likely hold policy steady despite more hawkish messages from its board last week. Elsewhere, bitcoin had another rough weekend as it tumbled back below $90,000 - although it steadied somewhat first thing Monday. Gold and silver were back on the rise again, however.

Today’s Market Minute

• China’s factory output growth slowed to a 15-month low, while retail sales posted their worst performance since the country abruptly ended its draconian “zero-COVID” curbs, highlighting the urgent need for new growth drivers heading into 2026.

• After a stellar 2025, investors expect shares in European banks to keep heading higher in 2026, supported by strong earnings and, crucially, cost savings stemming from artificial intelligence.

• Big Japanese manufacturers’ business sentiment hit a four-year high in the three months to December, a closely watched survey showed on Monday, reinforcing market expectations the central bank will raise interest rates this week.

• The United States’ tightening grip on Venezuela’s oil exports could strangle the country’s crude output and cut off President Nicolas Maduro’s main economic lifeline, but it will have limited impact on the global market, argues ROI Energy Columnist Ron Bousso.

• Investors have long been preoccupied with the question of whether companies are beating their supposed “Street estimates” each quarter, but perhaps the entire concept of “beats” should be up for debate, writes Marty Fridson in his latest column for ROI.

Chart of the day

China’s new home prices extended declines in November, with monthly prices in the red again and annual declines accelerating to 2.4%. As the property slump persisted, China Vanke made a renewed effort to muster bondholder backing for an onshore debt repayment due this week and avoid a default after the state-backed developer’s plan was rejected. The latest debt crisis in the Chinese property sector, which has been reeling since 2021, comes as data showed slowing factory output and retail sales growth last month and highlighting an urgent need for new growth drivers.

Today’s events to watch (all times EDT)

• New York Federal Reserve December manufacturing survey (08:30), NAHB Dec housing market indicator (10:00); Canada November consumer price inflation (1:30)

• New York Federal Reserve President John Williams and Fed Board Governor Stephen Miran both speak

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China’s home price slump deepens (Copy)

(By Mike Dolan; Editing by Hugh Lawson)