UBS Maintains Bullish Stance on Equities Amid AI Capex Surge and Fed Pause

Global Equities Rally on AI Capex Optimism

Global stock markets extended gains in Q2, with the MSCI All Country World Index rising 14.5%—its strongest quarter in six years. UBS remains optimistic, projecting AI-related capital expenditure to approach $1 trillion annually by next year. The bank argues supply chain bottlenecks in semiconductors and infrastructure will sustain momentum for AI-linked equities despite concerns over long-term capex sustainability.

Broadening Rally Driven by Cyclical Recovery

UBS anticipates a shift in market leadership as cyclical sectors gain traction. Easing energy prices and gradual normalization of shipping through the Strait of Hormuz are expected to reduce cost pressures and improve supply chain visibility, boosting non-AI sectors. In the U.S., resilient economic growth, a stable labor market, and robust credit creation are seen supporting earnings outside the tech complex.

Central Bank Policy Outlook: Fed Pause, ECB Caution

The bank expects the Federal Reserve to hold rates steady through 2026, citing moderating inflation and a non-overheating labor market. UBS interprets Fed Chair Kevin Warsh's task force approach as indicative of a slower policy reaction. In Europe, further ECB tightening is viewed as delayed and data-dependent, with energy price declines easing near-term inflation risks.

Implications for Forex Traders

The DXY faces downward pressure amid expectations of prolonged Fed inaction and improved risk appetite. Commodity-linked currencies may benefit from easing energy costs, while emerging market assets could outperform if global growth momentum broadens. Traders should monitor U.S. inflation data and ECB policy signals for directional cues.

Risk Disclaimer: This analysis is for informational purposes only. Trading involves significant risk and may not be suitable for all investors. Past performance does not guarantee future results.