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More big names sound the AI bubble alarm
On Tuesday, the Governor of the Bank of England (BoE), Andrew Bailey joined the growing number of finance leaders worried about the AI boom and the inflated value of tech companies. In his letter to other G20 finance ministers and bank governors he said, “While most jurisdictions have seen a rebound in financial markets in recent months, the resulting asset valuations could now be at odds with the uncertain economic and geopolitical outlook, leaving markets susceptible to a disorderly adjustment.”
The next day, the International Monetary Fund (IMF) echoed Bailey’s comments when they released their latest World Economic Outlook report. The report draws parallels between the AI boom and the dot com bubble and said, “disappointing results on earnings and productivity gains” could lead to a “significant market repricing” and “an end to the AI investment boom.” The IMF also warned that the “narrowness” of the groups of firms and sectors receiving “excessive capital flows” could slow a post-bubble economic recovery. Also on Wednesday, Citigroup analysts estimated that nearly 50% of the S&P 500 have a “high” or “medium” exposure to AI.
Multimillion dollar write-offs and worries about US credit spook markets
European markets reacted badly on Friday to the news that two US regional banks, the Utah-based Zions Bancorporation and Phoenix’s Western Alliance needed to write off loans worth $50mn and $100mn respectively.
The write-offs raised more questions about the broader health of US private credit following last month’s collapse of auto finance lender Tricolor and auto parts manufacturer First Brands. With cars being so essential for work, issues in the automobile sector and increasing consumer defaults can be seen as an indicator of wider problems in the US economy. An estimated 100mn Americans have cars on finance. The average monthly payment is now higher than $750, with total automobile debt standing at $1.66tn. Last year car repossessions went up 16% and hit their highest level since 2009 as 1.73mn vehicles were seized.
Banks were hit particularly hard by the write-off news, with €37bn wiped off the European banking sector. £11bn of this was taken off the value of the UK’s largest listed banks. A fall in gold and silver prices after Trump said a “full-scale” tariff on China would be unsustainable sent precious metal miners down too, with Fresnillo falling 7.3% and Endeavour Mining dropping 5.8%.
The CBOE Volatility Index (VIX), which tracks market volatility, increased by more than 22% on Thursday to reach its highest closing level since the week Trump announced his “Liberation Day” tariffs. It did calm down on Friday but month on month the “fear index” is still up just over 28%.
Reeves gets GDP boost before budget
GDP figures gave Rachel Reeves a lift on Thursday. According to the latest release from the Office for National Statistics (ONS), the UK economy expanded by 0.1% in August.
Reeves is currently deciding how to close the budget-spending gap in her Autumn Budget. On Thursday, The Institute for Fiscal Studies (IFS) projected that she’ll need to find £22bn to make up for the government’s budget shortfall. Last week, she said “we’re looking at tax and spending” increasing the likelihood of some form of tax rises. Cutting the cash ISA allowance also appears to be back on the table. Latest reports suggest Reeves is looking to cut the limit to £10,000 a year.
Coming Up:
- UK CPI, Wednesday 22 October at 07:00am
- US jobless claims, Thursday 23 October 2025 at 13:30pm
- S&P manufacturing and services, Friday 24 October 2025 at 14:45pm
Notice:
For regulated financial advisers and investment professionals only, Copia does not provide financial advice, and the contents of this document should not be taken as such. The performance of each asset class is represented by certain Exchange Traded Funds available to UK investors and expressed in GBP terms selected by Copia Capital Management to represent that asset class, as reported at previous Thursday 4:30pm UK close. Reference to a particular asset class does not represent a recommendation to seek exposure to that asset class. This information is included for comparison purposes for the period stated but is not an indicator of potential maximum loss for other periods or in the future.
