GLOBAL MARKETS-Stocks climb as strong tech results reignite AI trade, yen swings

Global stocks rallied on Friday, driven by strong results from Amazon and Microsoft, while currency traders remained cautious due to potential intervention in the yen.

​Global stocks rallied on Friday as robust results from Amazon and Microsoft ‌reassured ​bruised investors to return to AI trade, while currency traders stayed alert to intervention a day after Japanese authorities likely stepped in to prop up the yen.

An abrupt strengtheningin the Japanese currencyearlier in the session faded, with the dollar last up 0.35% at 160.09 yen , after the Bank of Japan held interest ‌rates steady. "The yen fundamentals and technicals are very poor. Intervention is not a credible, long-term solution," said Lauren van Biljon, senior portfolio manager, rates and FX, at Allspring Global Investments.

Meanwhile, investor worries that the AI rally may soon run out of steam eased after Microsoft's earnings on Wednesday, where it forecast generating cash throughout fiscal 2027. Amazon followed a day later with its strongest cloud growth in more than four years, calming investors eager for signs that the billions ‌being poured into AI buildout are bearing fruit.

In Europe, the STOXX 600 index hit a record high and was poised for its fourth consecutive month of gains. Futures tracking the tech-heavy Nasdaq 100 index rose ‌1.05%, while S&P 500 and Dow futures rose 0.32% and 0.45%, respectively.

South Korea's battered KOSPI leapt 17.91%, mounting a record comeback after heavy losses earlier this week. The tech-heavy bourse, still about 30% off its all-time high, has become emblematic of the sharp swings in investor sentiment towards AI-related stocks. "Investors are increasingly focused on capital efficiency, financing and the long-term economics of hyperscalers' AI spending rather than on near-term demand," said Saverio Papagno, portfolio manager of North Square Growth Opportunities ETF.

While worries about competition from China and AI hyperscalers' debt reliance ⁠swirl, selloffs could ​be a buying opportunity for long-term investors as "the sector ⁠will resume its leadership" once there is greater clarity, he said. The MSCI All Country World Price index gained 0.81% and was on track to snap a two-week losing streak. It will still end the month with losses of 0.40% should current levels hold.

BOJ HOLDS RATES ⁠DAY AFTER INTERVENTION The yen had gained on Thursday, when Japan conducted yen-buying, dollar-selling intervention, a market source said.

But such efforts have had limited success in reversing the weakness in the currency, and analysts say the outlook may not improve unless ​the central bank raises rates. The BOJ kept interest rates unchanged on Friday, but signalled its resolve to push up borrowing costs.

At a press conference, BOJ Governor Kazuo Ueda said inflation risks were ⁠skewed to the upside, and the central bank was prepared to speed up the pace of rate hikes should monetary conditions be accommodative. "I wish they'd come out and just hiked maybe every other month through this year. It's difficult because of the gain in oil prices, ⁠but ​with core inflation pretty well-behaved I think they could have done that," Allspring's van Biljon said.

WAR KEEPS MARKETS ON EDGE The Middle East conflict remains a major overhang for global equities. Fresh strikes in the region have dashed hopes of an imminent resolution, and diplomatic efforts to end the war have proceeded in fits and starts.

Oil prices rose sharply in July, with Brent crude headed for monthly gains for the first time ⁠since March. "The shock absorbers in oil markets are dwindling fast, so a failure to de-escalate would be materially costlier than previous rounds of tension," wrote Teddy Bunzel, head of Lazard Geopolitical Advisory at Lazard Asset ⁠Management.

Shipments through the crucial Strait of Hormuz remain disrupted. The ⁠alternative route through the Bab el-Mandeb Strait has also come under attack from the Iranian-backed Houthis, further worsening the outlook. The yield on the 30-year U.S. Treasury slipped 2.32 basis points but held close to 19-year highs. Short-end yields eased, steepening the curve as doubts grow over the Federal Reserve's ability to anchor inflation expectations.

The ‌Fed stood pat on rates earlier ‌this week, but commentary from the chair confused markets.