The US small-cap index jumped 2.5%, while the Stoxx 600 and FTSE 100 rebounded as well, despite both the European Central Bank (ECB) and the Bank of England (BoE) delivering no rate cuts at their latest meetings and being expected to deliver none this year. I will come to yesterday’s BoE decision later, but first...

While US stock markets were hitting fresh records, a sharp slump in weekly jobless claims raised some eyebrows among bond traders about the health of the US jobs market. The US 2-year yield rebounded to 3.58%. But weekly figures tend to be volatile for multiple reasons, so I don’t think this changes the broader narrative of a weakening jobs market. I would be more concerned to see inflation pick up rather than a sudden return to strong US jobs numbers.

All in all, US and global assets popped the champagne yesterday—but Japanese equities are feeling hungover this morning. The Bank of Japan (BoJ) maintained its rates unchanged, which is positive because the next move is expected to be a rate hike, but it also announced it will start selling about ¥330bn worth of ETFs per year. Considering the BoJ has become a major holder of domestic assets, the announcement did little to support investor sentiment into the weekend. The Nikkei is down more than 2% at the time of writing.

The risk now is that this shift reverberates beyond Japan: tighter BoJ policy could counterbalance Fed-driven optimism, pressure richly valued US tech names and weigh on Europe’s luxury and cyclical exporters exposed to Asian demand. On the fixed income side, reduced Japanese demand for overseas bonds could push yields higher—especially long-term maturities in the DM markets—while FX moves could worsen matters if the yen strengthens and the BoJ continues its normalization, potentially triggering a reverse carry trade.

In short, what looks like a step toward long-term normalization in Japan risks feeding near-term risk-off sentiment globally. The Japanese 10-year bond rose following the BoJ decision, while the US 10-year yield probably hit a bottom around 4%. Futures markets are mostly flat this morning, with FedEx up 6% in after-hours trading on strong results. We could see some profit-taking at the end of a central bank-heavy week: the Fed started cutting rates and indicated more cuts could come, but with wide divergence among members about next steps; the BoC cut its rates by 25bp, while the BoE and BoJ stayed on hold.

Speaking of the BoE: it maintained rates unchanged yesterday but took a dovish step by reducing QT. It will sell £70bn in assets over the next year instead of £100bn, focusing more on short-term gilts to ease pressure on long-term yields that affect pensions, insurers and government borrowing costs. Whether this will meaningfully boost UK fiscal headroom is yet to be seen. The 10-year gilt yield closed higher after starting the session elevated.

Broadly, long-maturity yields in developed markets remain under pressure. US tech valuations are still rich, and political and geopolitical tensions across the US, Europe, the UK and Japan remain front-page news. Today, Trump and Xi are scheduled to discuss trade, TikTok and other issues. While a further extension of the trade truce is possible, prolonged negotiations give China time to reduce technological dependence on the US—for instance, this week, Alibaba and ByteDance were instructed not to purchase Nvidia chips. And Huawei announced new AI chips and supercomputers rolling out from 2026 to 2028, aiming to compete directly with Nvidia through advanced memory and large-scale computing systems.

In the US, there is growing effort to broke large deals to bring manufacturing back home and reduce dependence on foreign suppliers, as well. Yesterday, Nvidia announced a $5bn investment in Intel for about a 4% stake and a collaboration to develop new chips for PCs and data centers, pairing Nvidia’s GPU and AI expertise with Intel’s CPU ecosystem. The deal could signal confidence in Intel’s turnaround—or a political win for the US administration aiming to revive a former national champion and boost domestic chip manufacturing.

For Nvidia, it offers more control over CPU/GPU integration in AI infrastructure, as well as stronger political ties to the US government that also took a 10% stake in the company recently (!) Shares reacted accordingly: Nvidia rose 3.5%, Intel 23%, and both could continue benefiting from government-linked news. Notably, Huang said these discussions had been ongoing for a year, unrelated to recent developments, but the way Nvidia navigates political environments is both intriguing and high-stakes.

For other chipmakers, the Nvidia-Intel deal increases competitive pressure on AMD, which is not part of such politically strategic US alliances. Meanwhile, Chinese SMIC consolidated gains near all-time highs.

In summary, the week ends with a heating chip war, strong tech demand supported by softer Fed policy, but many looming questions regarding rich US valuations, ongoing political, geopolitical risks and multi-year high long-maturity yields.