Morning Brew July 31 2026

Good morning.

Month-end with a powerful AI rebound Will it hold?

• Microsoft reignited confidence in AI winners after strong cloud guidance.
• Semiconductors surged, but crowded AI exposure remains volatile.
• Asia rebounded sharply, with Europe set for a firmer open.
• BOJ delivers a hawkish hold, USDJPY 160.60

Wall Street closed sharply higher on Thursday, led by technology and semiconductors. The S&P 500 gained 1.66% to 7,437.63, the Nasdaq rose 2.78% to 25,122.18, and the Dow added 1.19% to 52,208.06.

Microsoft was the clear driver. The stock jumped more than 15%, adding almost USD 450 billion in market value in a single session — the largest one-day value creation ever recorded for a listed company. To put that into perspective, only a few dozen companies globally are worth more than what Microsoft added yesterday.

The reason was not just the earnings beat. Microsoft managed to shift the AI conversation from “how much are they spending?” to “what are they earning from it?” Azure growth and cloud guidance came in ahead of expectations, while management kept the capex message disciplined enough for investors to believe that the AI buildout can still be funded by strong cash generation.

That is the important distinction in this earnings season. The market is not rejecting AI spending outright. It is rewarding companies that can show visible revenue, strong cloud demand and enough free cash flow to support the investment bill.

Meta showed the other side of the same trade. The stock came under pressure after free cash flow fell sharply, highlighting the strain of its AI buildout. Alphabet and Tesla had already reminded investors last week that heavy AI-related spending is becoming a much tougher sell when the cash-flow picture weakens.

Semiconductors reacted strongly to the Microsoft relief. The Philadelphia Semiconductor Index surged 8.2%, with Micron up 18%, Sandisk up 26% and AMD up 13%. This looks like a strong relief rally, but not yet a full all-clear. The sector remains highly sensitive to valuation, financing costs and any sign that AI infrastructure spending is slowing.

Asia followed Wall Street higher. South Korea’s KOSPI jumped 14%, reversing a large part of the recent selloff, while Japan’s Nikkei gained more than 3% and the broader Asia-Pacific index outside Japan rose around 5%. European markets are also looking at a friendly open, with the DAX indicated roughly 0.6% higher.

The rates backdrop remains less friendly. Long-end U.S. Treasury yields are still near multi-year highs, while short-end yields have eased, steepening the curve. That is not a comfortable setup for highly valued growth stocks, especially those dependent on cheap financing for data centres, power and compute.

Apple disappointed after the close, with guidance pointing to slower-than-expected sales growth as supply constraints weighed on product delivery. The shares fell about 5.5% after hours. Amazon, by contrast, delivered its strongest cloud growth in more than four years and raised its annual capex forecast, arguing that demand for AI infrastructure remains stronger than available capacity.

Amazon shares rose nearly 9% after hours. The message is similar to Microsoft’s: investors will tolerate heavy AI spending if the company can show that demand is already there and that the spending can translate into cloud revenue and future cash flow.

On the company side, Sony reported a 40% rise in quarterly profits, while Tesla is reportedly reviewing a potential sale of its Chinese business. These are important single-name stories, but the main market driver remains the broader AI funding debate.

The Bank of Japan kept rates steady at 1%, but the statement was hawkish. The central bank warned that underlying inflation could move above its 2% target and signalled that further rate hikes remain on the table. That matters because Japan is no longer just a low-rate anchor for global markets.

USD/JPY remains the key FX pressure point. The pair is still around the 160 area after recent yen-support measures, leaving intervention risk firmly on the radar. The USD Index is softer around 100.20, EUR/USD is at 1.1506, GBP/USD at 1.3440, gold at 4,080 and silver at 58.65.

The geopolitical backdrop is also still present. Donald Trump said a U.S.-initiated peace council had allegedly reached an agreement for the full disarmament of Hamas in Gaza. For markets, the immediate impact is limited, but the Middle East remains a headline-risk area for oil, inflation expectations even if Oil is 2% lower today.

My concern is that the volatility around the AI trade seems to be becoming unhealthy. A calmer market would probably do more for investor confidence than another violent squeeze higher. The collapse of Situational Awareness LP, the AI-focused hedge fund founded by former OpenAI researcher Leopold Aschenbrenner, is a useful warning. The fund reportedly had to unwind most or all of its public equity portfolio after large losses and margin pressure in leveraged AI infrastructure positions.

This is the lesson: leverage changes the game. With leverage, you need to be right and you need to be right at the right time. Without leverage, you mainly need to be right.

Microsoft and Amazon have given the AI trade breathing room, Asian markets are rebounding, and Europe should open higher. But long-end yields, Japan, Apple’s weaker guidance and the forced unwind of a major AI hedge fund are all reminders that this remains a vulnerable market

A topic likely to gather attention in the next weeks is the implication of the heatwave in Europe on agricultural production, el Nino has not even started…

Trade carefully.

Friday, July 31, 2026
Macro: China PMI; euro-area CPI; U.S. University of Michigan Consumer Sentiment.
Central banks / speakers: Bank of Japan rate decision.

Monday, August 3, 2026
Macro: U.S. ISM Manufacturing PMI and construction spending.
Corporate earnings: Marriott International, Tyson Foods, Palantir, Vertex Pharmaceuticals, Snap, ON Semiconductor and Diamondback Energy.

Tuesday, August 4, 2026
Macro: U.S. JOLTS job openings.
Central banks / speakers: Reserve Bank of Australia rate decision.
Corporate earnings: Spotify, BioNTech, BP and several major European and U.S. companies.

Wednesday, August 5, 2026
Macro: U.S. ISM Services PMI; ADP employment report.
Central banks / speakers: No major central-bank decision scheduled.
Corporate earnings: Eli Lilly, Disney, Uber and several large-cap reporting names.