Philadelphia Semiconductor Index surges nearly 7% + oil prices cool down, AI computing power counteroffensive "passes another test": tonight's CPI data becomes the litmus test.

US tech stocks have just staged a strong recovery after a sharp selloff, and the US CPI inflation data due Tuesday evening Beijing time has immediately become the latest test of the sustainability of the AI-computing-power-led tech rally. As of Monday's US market close, the Nasdaq 100 rose 3.40%, while the Philadelphia Semiconductor Indexwidely regarded as the "global AI computing power trading barometer"rebounded 6.85%, easing pessimistic pricing over the AI regulatory shock from a Democratic midterm sweep of both chambers of Congress. However, the latest developments show that long-dated US Treasury yields of 10 years and above remain near their highest levels in more than two decades, and the pullback in international oil prices has not yet eliminated the Fed's monetary tightening pressure: the US October CPI due at 21:30 Beijing time tonight is expected to show headline and core month-on-month gains of 0.3% and 0.2% respectively; against the backdrop of 165,000 new nonfarm payrolls and an unemployment rate falling to 4.1%, the market's bet on a 25-basis-point Fed rate hike in December remains above 80%. What the CPI inflation data really needs to answer is whether cooling energy prices can drive a broader easing of price pressures, or whether services stickiness and AI construction demand will continue to support Fed tightening. Tech stocks have just staged a strong recovery from regulatory concerns and concentrated selling, and the inflation data has immediately become an important variable testing the sustainability of the counteroffensive. Strong employment raises the economy's capacity to withstand rate hikes, while sticky services prices and concentrated demand from data centers for electricity, equipment and construction workers may prolong price pressures, and the market's bet on a 25-basis-point December rate hike remains above 80%. Philadelphia Semiconductor Index up nearly 7% faces CPI test! Can the tech stock recovery rally advance further? Last Thursday's massive selloff in US tech stocks carries clear historical weightthe Nasdaq 100 fell 6.36%, the largest single-day drop since March 2020; according to Bloomberg statistics, about US$2.3 trillion of market value evaporated in a single day, a record single-day market value loss for the index. The Philadelphia Semiconductor Index plunged 12.25% over the same period. Even with Friday's rebound, the two indices still fell about 4.91% and 12.15% respectively last week, enough to show that the selling shock was concentrated in the semiconductor sector and broadly in popular tech assets that had previously carried extremely high growth expectations. Trump over the weekend blamed the roughly US$3 trillion single-day US stock market loss on the Democrats winning the midterm elections, and promised the market would return on a larger scale and with greater strength. However, the actual transmission chain in the market is more specificinvestors have recently broadly worried that the new Congress and some state governments strengthening AI regulation, data center approvals and energy cost-sharing requirements could delay project delivery, pushing back significantly the timeline for realizing trillion-dollar-scale AI infrastructure orders tied to AI chips and returns on AI data center investment. This significant shift in expectations, meeting existing high valuations and crowded positioning and then amplified by systematic deleveraging, formed a major tech stock selloff far exceeding the impact of any single policy headline. Well-known investment institution Kobeissi Letter also explained it mainly as a sudden sentiment shift colliding with high leverage, rather than AI fundamentals tied to AI computing power reversing comprehensively in a single day. Monday's rebound reflected a correction of the above pessimistic expectations. AMD rose about 13.3%, Broadcom rose about 8.8%, and tech giants such as Microsoft and Meta also strengthened notably; the VIX fear index plunged 22.3% to 19.92. However, Nvidia was affected by a company-specific eventnamely the extramarital affair controversy involving founder Jensen Huangand fell about 4.2% against the trend. Regarding excessive market concern, Morgan Stanley believes the regulatory impact of a Democrat-led AI data center push may mainly manifest as some construction projects being delayed from 2028 to 2029, and the trillion-dollar-scale capex cycle around AI infrastructure can still continue long term; UBS also believes the market is overly pessimistic in pricing AI political, credit and spending risks. Energy cooling versus overheating demand: a key CPI report reflecting October inflation will be released Tuesday October gasoline prices fell, bringing some relief to consumers, but Fed officials are increasingly worried that inflation pressures in other parts of the economy are becoming harder to contain. According to US Energy Information Administration data, pump gasoline prices fell more than 4%, temporarily easing the pressure from a more than US$1 per gallon increase over the past year. However, the consumer price index for the month, due at 8:30 am Tuesday from the Bureau of Labor Statistics, is expected to show only a slight slowdown in price increases. Meanwhile, Fed officials say they are worried that inflation, initially pushed up by President Donald Trump's tariff policies and the Iran war, is more persistent than expected, with price pressures hitting industries outside the direct impact. As the Fed grows more confident about labor market conditions, the cost of living has become its top concern. "We're getting closer to what historically would be considered full employment, and the main problem has been inflation. We go around our district and talk to people, and all we hear about is business affordability and costs," Chicago Fed President Austan Goolsbee said at a local event on Monday. "So we have to face the fact that we are not meeting our targets on costs and inflation." According to Dow Jones consensus estimates, headline CPI is expected to rise 0.3% month-on-month; excluding volatile food and energy costs, core inflation is expected to rise 0.2% month-on-month. While both would be below September's 0.6% and 0.3% monthly gains respectively, they still imply continued price pressures. Because a government shutdown a year earlier prevented the BLS from collecting some data and compiling complete index levels, no year-on-year reading will be published for October. The missing data means there is no comparable index value. Bank of America, by interpolating last year's data and setting an estimated base, calculates headline and core year-on-year gains of 3.8% and 2.7% respectively, both 0.1 percentage point higher than September and clearly above the Fed's 2% target. Goolsbee said the current inflation path deviates from the usual impact path of supply shocks and tariffs, and that hyperscalers' AI infrastructure buildout is exacerbating the situation. "These effects should have faded by now, but we are now starting to see inflation heating up in areas that may not be driven by oil prices and tariffs, such as many service industries. Now, AI data center construction, in my view, is starting to look more and more like traditional demand overheating," he said. He added that massive data center investment is creating demand for construction workers, electricity and equipment. Even if AI promises long-term productivity gains, these investments may still add to current price pressures. The Fed rate curve still faces significant upward pressure Although the Fed voted in October to keep the benchmark rate unchanged, according to CME's "FedWatch" tool, the market currently sees a probability above 80% that the central bank will raise rates by 25 basis points at its next meeting in December. Goolsbee does not have a vote on the rate-setting Federal Open Market Committee this year but will have a vote in 2027. He did not explicitly say whether he favors further hikes, but said current conditions may justify action. "The traditional view is that you should act aggressively early to avoid overheating the economy, because once it overheats, it is very painful to eliminate that state," he said. "So I think we have to be vigilant about that risk." The CPI release comes as US economic growth is strong: third-quarter GDP grew at a 3.4% annualized rate, and according to Atlanta Fed tracking estimates, fourth-quarter growth is 3.5%. The labor market also looks quite solid. October nonfarm payrolls rose by 165,000, clearly beating expectations, and the unemployment rate edged down to 4.1%, although real wage growth after inflation remained negative. This keeps inflation data in the market spotlight. Bank of America says tariff effects are fading, but booming AI-infrastructure-related demand may push some goods prices further higher. In addition, the bank remains cautious on sticky services prices and price pressures in medical insurance and autos. The bank's view on the Fed policy outlook has been relatively hawkish, believing that as long as the stock market does not see further sharp selloffs that could make the central bank change its decision, a December hike is very likely. "This will be the last inflation report before the Fed's December 8-9 meeting. If our forecast is right, all else equal, we think this effectively locks in another 25-basis-point hike," BofA economist Stephen Juneau said in a client note. "Unless there is an unambiguously weak reading of just 0.1% month-on-month, we doubt the inflation data can stop the Fed from hiking in December. The bigger risk to our call comes from financial markets." It should be noted that the "last inflation report" in the quotes above refers precisely to the last CPI inflation report before the Fed's next FOMC monetary policy meeting; the October personal consumption expenditures price index (PCE) will still be published on November 25. Gasoline price declines are not enough to remove Fed tightening pressure; massive demand tied to AI infrastructure becomes a new inflation variable Wall Street is fairly unanimous on the direction of October inflation cooling, but still divided on the magnitude. Wells Fargo expects headline and core CPI to rise 0.28% and 0.21% month-on-month seasonally adjusted, UBS forecasts 0.26% and 0.23%, Barclays expects 0.2% for both, and Royal Bank of Canada expects 0.3% for both. Both Wells Fargo and Barclays believe a moderate reading is not enough to change the baseline call for one more hike in December; Royal Bank of Canada is more focused on the risk of continued increases in imported goods, auto-related costs and services prices. The change in the Fed's concern is that inflation may spread from energy- and tariff-driven cost shocks into demand pressures that are harder to fade on their own. Chicago Fed President Goolsbee pointed out that some services price increases can no longer be explained simply by oil prices and tariffs, and AI data center construction is beginning to show the characteristics of traditional demand overheating. From an industry transmission mechanism perspective, concentrated data center construction competes for power access, equipment capacity and skilled construction workers; when these resources, closely tied to AI infrastructure and companies' day-to-day operations, are hard to expand in the short term, large-scale investment growth will first push up baseline costs, while the cost-reducing effect of AI raising economy-wide productivity often takes longer to materialize. Therefore, AI helping suppress inflation over the long term and pushing up some prices during the construction phase can both hold true at certain early stages. Strong employment, in turn, increases the Fed's policy room to keep fighting inflation. 165,000 new jobs and an unemployment rate falling to 4.1% weaken the case for an immediate pivot to supporting growth. BofA senior economist Stephen Juneau believes that unless there is a clearly weak 0.1% month-on-month reading, the inflation data may not be enough to stop a December hike; by contrast, the bigger variable is whether financial markets see another severe selloff. Because last year's government shutdown caused a missing base, the usual headline and core CPI year-on-year gains will not be published this time; BofA's estimated 3.8% and 2.7% are model results after backfilling the base. For global tech stocks that are now rallying sharply, the key is whether CPI changes the rate path already priced in by the market. With the probability of a December hike already above 80%, data in line with expectations may not constitute a new major shock; if core inflation and services prices are clearly stronger, the market may further raise its 2027 rate expectations, lower the present value of forward earnings and raise the interest rate threshold for new financing. Conversely, if cooling covers more core components, it could ease concerns about further hikes and provide a more favorable environment for earnings resilience and dip buying. Monday's rebound has already shown that stocks can rise even with high rate-hike expectations; tonight's data will test the balance between earnings support and valuation pressure.