48 hours to test the exuberance

Despite months of fretting about possible bubbles in the AI gold rush, the world's most valuable stock, AI chip giant Nvidia, is poised to top $5 trillion in market value for the first time at the market open on Wednesday - just three months after it crossed the $4 trillion mark. Microsoft and Apple are now above or flirting with $4 trillion market caps too.

The top four U.S. megacaps now have a market value in excess of the entire European STOXX 600 index, which is just under $14 trillion. 

Nvidia shares jumped 5% on Tuesday and another 2.8% in premarket trade today after CEO Jensen Huang announced $500 billion in AI chip orders and plans to build seven supercomputers for the U.S. government. 

And with optimism rising this week around some trade war detente at Thursday's crucial summit between President Donald Trump and China's President Xi Jinping in South Korea, Trump praised Nvidia's flagship Blackwell model as a "super-duper chip" and said he might speak to Xi about it following on-off curbs on tech exports this year. 

Meantime, Microsoft, Meta and Alphabet report earnings updates after Wednesday's market close and Apple and Amazon are out Thursday. Microsoft shares jumped 2% on Tuesday after it and OpenAI announced a restructuring that frees the ChatGPT maker to move away from nonprofit roots and go public - allowing it to finance CEO Sam Altman's ambitious plans to develop data centers and cutting-edge technology.

With AI bullishness in overdrive, the potential downside of the technology was also in evidence this week - with sweeping job cuts announced by the likes of Amazon and UPS. With official economic data still absent due to the government shutdown, a preliminary estimate of an ADP National Employment Report showed the U.S. economy added an average of 14,250 jobs in the four weeks ending October 11.

And it is softness in the labor market that's likely to keep the Federal Reserve cutting interest rates later on Wednesday, this time by another quarter point to below 4% for the first time in three years. Investors will also watch closely for an announcement on the end of its balance sheet rundown, so-called "quantitative tightening".

Despite another heavy week of new debt sales, Treasury yields were subdued ahead of the decision - with the MOVE gauge of bond market volatility falling to its lowest in four years this week. The dollar was marginally firmer.

And with AI driving the megacaps, Wall Street index futures were up again ahead of today's bell after hitting record closing highs on Tuesday.

Elsewhere, the Bank of Canada is also expected to cut its interest rates today by a quarter point. Tomorrow's decisions from the European Central Bank and Bank of Japan are expected to leave policy unchanged there.

In the thick of the European earnings season, Deutsche Bank rose 1% after its positive earnings - but UBS dropped 1% despite a forecast-beating 74% surge in net profit.

Global investors have spent a year fretting about a U.S. bond market blowup, citing all the necessary ingredients: public debt, inflation, Federal Reserve independence and dollar risks.

If a Treasury market accident is around the corner, the options market certainly isn't picking it up. Quite the opposite.

As the Federal Reserve looks set to lower its policy rate again on Wednesday - and also possibly end its three-year balance sheet rundown - the MOVE index of implied volatility in U.S. Treasuries has cratered to its lowest in almost four years.

That index is now less than half the peak reached during this year's April tariff shock and last year's U.S. presidential election. 

Graphics are produced by Reuters.

Nvidia was set to make history on Wednesday by becoming the first company to notch $5 trillion market value, extending a powerful rally that has cemented its place at the center of the artificial intelligence boom. President Donald Trump said he will speak to Chinese President Xi Jinping about Nvidia's state-of-the-art Blackwell AI chip at their expected meeting on Thursday. Sales of the U.S. firm's high-end AI chips to China, which accounted for 13% of its revenue in the past financial year, have been a key sticking point in protracted trade talks between the world's two largest economies this year. 

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