Week Ahead: How Will the AI Trade, U.S. Inflation and UK GDP Shape Markets?

Sharp swings gripped markets last week as investors digested the U.S. midterm election results and the Democrats’ takeover of Congress. Equities, gold and Bitcoin initially rallied after the outcome, but optimism soon faded. Fears about the outlook for the AI buildout under a Democratic Congress then triggered a sell-off in tech stocks.

The outlook for AI stocks will remain a key concern for investors this week, keeping the U.S. in focus as markets continue to weigh the implications of the midterm elections.

Can the AI trade regain its footing?

Prospective legislation has raised market fears of slower data centre construction and stricter oversight of AI infrastructure. Wall Street was already scrutinising substantial capital expenditure projections and questioning when those investments would deliver returns. Thursday’s 5.5% Nasdaq slump was followed by a 1.7% recovery on Friday, suggesting investors were cutting risk and trimming exposure rather than exiting the AI trade altogether.

Tuesday’s post-close results from CoreWeave are set to be among the week’s most significant earnings announcements. Regarded as a bellwether for the AI trade, the heavily indebted neocloud firm needs to set out how it plans to fund expansion and handle its borrowing costs.

A further major test for the AI infrastructure trade arrives on Thursday, when another prominent neocloud firm, Nebius, releases its results.

If worries surrounding the AI trade persist, the Nasdaq could face fresh selling pressure.

Will U.S. inflation reinforce the signal from forecast-beating NFP?

An upside surprise in headline CPI, potentially above 4%, is a risk as attention also turns to October’s U.S. CPI and PPI releases. Although crude prices dropped steeply last week, including a 16% decline in Brent, oil rallied roughly 15% over October.

Alongside close scrutiny of core CPI, investors expect headline CPI to increase from September’s 3.7% to 3.9%.

Ahead of the releases, markets assign an 80% probability to a Fed rate hike in December after Friday’s nonfarm payroll report exceeded expectations. Employment increased by around 165,000, substantially above the 65,000 forecast, while unemployment edged down to 4.1%.

If inflation runs hot on the heels of robust employment figures, expectations of a December rate hike could become more firmly established. That could strengthen the U.S. dollar, especially against risk-sensitive currencies such as the Australian dollar.

With AUD/USD testing its June lows, strong data and continued tech-sector weakness could drive the pair towards its 2026 lows.

Can strong UK GDP support GBP/USD following the BoE hike?

Friday brings the UK GDP release, following the Bank of England’s widely expected rate increase of 25 basis points.

Forecasts point to UK GDP growth of 0.7% quarter-on-quarter in Q3, compared with 0.5% in Q2.

Ahead of the GDP figures, the BoE delivered a 25 basis point rate hike with a more hawkish voting split than anticipated and lifted its inflation forecast to 4.9% by Q2 2027. It also increased its growth projection for this year from 1.1% to 1.6%.

A robust GDP reading could lift GBP/USD by strengthening expectations of a further BoE rate increase.

Markets currently assign a 56% probability to an additional 25-basis-point increase in December and have priced in three hikes over the coming year.

Those expectations could gain further support from strong GDP figures, helping GBP/USD stay within its ascending channel.