By Daniela Hathorn, senior market analyst at Capital.com
Global markets are extending their recovery this morning after a strong and relatively broad-based session on Wall Street, where the S&P 500 gained 2.35%, its biggest one-day advance since April, and the Nasdaq rose around 2.7%. A sharp decline in oil prices and renewed buying in technology stocks drove the move. Asian equities have followed higher overnight, with South Korea’s KOSPI up more than 5% and Japan’s Nikkei around 3% higher, while European futures point to a firmer open. Even so, the recovery remains fragile, and it is too early to conclude that the recent correction has run its course.
Oil retreat removes some of the risk premium
The standout catalyst has been the sharp retreat in oil. Brent fell nearly 5% on Monday and has extended its losses this morning to around $92 per barrel, its lowest level in roughly ten weeks, after President Trump signalled that further military action against Iran was unlikely as long as diplomatic negotiations continued to progress. The prospect of reduced geopolitical tension has encouraged investors to strip out some of the risk premium built into energy prices, easing concerns about inflation and the need for further monetary tightening. However, this optimism rests on tangible diplomatic progress rather than a confirmed settlement. Attacks on shipping near the Strait of Hormuz have not stopped, and any setback in negotiations could quickly reverse the move.
Tech rebounds, but divergence persists
The recovery in technology stocks is also encouraging, although divergence within the sector remains notable. Semiconductor shares rebounded strongly yesterday, but Nvidia fell more than 4% after its board launched an independent investigation into reports that CEO Jensen Huang had been the target of a foreign intelligence effort. This shows how company-specific uncertainty can still weigh on sentiment even during a broader rally. More importantly, the underlying concerns about AI monetisation, elevated capital expenditure and stretched valuations have not gone away.
CPI: the decisive test
Today’s US CPI report could be the decisive test for the recovery. It is the last inflation reading before the Federal Reserve’s 8–9 December meeting. After Friday’s stronger-than-expected payrolls, which showed 165,000 jobs added against forecasts of around 60,000, markets are pricing roughly an 84% probability of another rate hike in December. Economists expect headline inflation to rise 0.3% month-on-month, down from 0.6% in September, with core inflation slowing to 0.2% from 0.3%. With no year-on-year figure due to data gaps from last year’s government shutdown, the monthly numbers will carry even more weight. An in-line reading may not be enough to shift Fed expectations materially. A hotter print, however, could force investors to reassess the risk of additional tightening into 2027, pushing Treasury yields and the dollar higher and potentially undermining the equity rebound.
The bottom line
Ultimately, markets are benefiting from an improving geopolitical outlook, but the underlying macroeconomic and corporate risks remain unresolved. Lower energy prices could help ease inflation expectations, but the Fed will need evidence of broader disinflation before reconsidering its policy stance. The key question is whether today’s inflation figures support the recovery or remind investors that resilient growth and persistent price pressures could keep borrowing costs elevated for longer. With technology valuations still sensitive to yields, another inflation surprise could quickly bring volatility back into focus. Until then, the rebound looks more like a relief rally than the start of a durable new uptrend.
