Making sense of the forces driving global markets

By Jamie McGeever, Reuters Open Interest Markets Columnist 

A surge in U.S. jobless claims to a four-year high on Thursday cemented investors' bets for a Fed rate cut next week, weighing on the dollar and bond yields, and lifting Wall Street's three main indices to new highs. For now at least, expectations of easy monetary policy are clearly trumping growth worries. 

More on that below. In my column today I look at how the extraordinary rise in Oracle's share price on Wednesday has reignited the already fiery debate over whether U.S. tech and AI stocks are in a bubble.  

I’d love to hear from you, so please reach out to me with comments at jamie.mcgeever@thomsonreuters.com. You can also follow me at @ReutersJamie and @reutersjamie.bsky.social. 

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* The claim game

The only debate now around U.S. interest rates, surely, is how fast they will come down. That's the upshot from the shock jump in jobless claims figures, which trumped wories over slower growth and simmering inflation numbers - claims surged the most in a year to the highest level in nearly four years.

Remember, a record downward benchmark annual revision to payrolls growth was announced earlier this week too. The labor market is clearly softening, but enough for a half-percentage point rate cut next week? That's still an outside bet, but the probability traders are attaching to it is creeping up. 

* Fed vs the world

The European Central Bank kept rates on hold at 2% on Thursday and bank president Christine Lagarde signaled its rate-cutting cycle is over, saying the bank remains in a "good place" and that risks to the economy have become more balanced. 

Traders agree. What's more, other central banks are at or close to the end of their easing cycles too. Rates futures pricing suggests that, of the nine non-U.S. G10 central banks, only Canada's is fully expected to cut rates 50 bps by the end of next year, three are unlikely to cut at all, and one - Japan - will raise rates.

* Dollar doldrums

The Fed's relative dovishness - or playing catch-up with many of its peers, if you prefer - is weighing heavily on the dollar. While the broad dollar index isn't making new lows right now, pockets of weakness continue to pop up.

On Thursday the greenback fell to 2025 lows against the Australian dollar, Mexican peso, Brazilian real and Colombian peso. The last time the dollar was this weak against these last two currencies was June last year.

The eye-watering surge in U.S. tech giant Oracle's share price on Wednesday added fuel to a fiery debate: is the U.S. artificial intelligence stock boom a bubble destined to burst? 

This is a question that has dogged Wall Street for months, as AI euphoria has helped the S&P 500 and tech-heavy Nasdaq hit new highs seemingly every day, swatting away the chaos and uncertainty surrounding tariffs, Washington politics and Fed independence.

But Wednesday felt different. It's not every day that one of the country's biggest tech companies sees its share price skyrocket by as much as 43%. Oracle is not a penny stock, startup or meme stock. A surge of this magnitude should make everyone reassess where markets are, and whether this boom is moving into unsustainable territory.

Below are five charts that suggest what former Federal Reserve Chair Alan Greenspan termed "irrational exuberance" may be engulfing AI and tech. 

1. Oracle's soaring valuation

Oracle, the cloud computing giant, saw its stock trade at nearly 50x estimated 12-month forward earnings on Wednesday, the highest since the dotcom crash when its forward PE topped 120. Its share price rose as much as 43% on the day, causing it to virtually double since June. 

Oracle did say it expects cloud revenue to exceed half a trillion dollars and announced four new multi-billion contracts, so some optimism is warranted. But should the company truly be worth twice as much as it was only three months ago?