US midterms – special issue

 

Tech enters correction territory after US voters rebuke Trumpism & AI

For a change, a US election followed the trajectory of the polls when the Democrats swept back control of Congress and the Senate. The initial market response on Wednesday was positive when it became clear that Trump wouldn’t contest the results. But on Thursday we saw the biggest one-day tech sell off since “Liberation Day” after investors remembered that AI was also under proper democratic scrutiny for the first time.

Of the 47 data centre moratoriums or restrictions that were on the ballet, 46 were approved. The only exception came from voters in the small town of Harwood, North Dakota (pop. 940). Voters in California, Ohio and Illinois, (states ranked fourth, fifth and sixth for total number of data centres in the US) voted resoundingly against plans to build more, in some districts by as much as 80%.

Aside from the practical implications of limiting data centre buildouts, prospects for AI and big tech were dealt a blow by the sheer number of young and progressive victorious Democratic candidates. OpenAI, Anthropic and Nvidia have significantly ramped up their lobbying spending over the last two years, but that money is likely to be wasted on the likes of Senator-elect for Texas (the state with the most data centres) James Talarico or the Bernie Sanders aligned Senator-elect for Michigan, Abdul El-Sayad. Making matters worse, the favourite to lead the Democratic party in 2028, Senator for Georgia Jon Ossoff, significantly increased his vote share after only narrowly winning his seat in 2021. In April, Ossoff launched an investigation into the impact of data centres on power bills in Georgia and has been an outspoken critic of the use of AI to deny medical insurance claims. He made it clear in his victory speech that he’s “committed to continuing the work of bringing big pharma, big insurance and big tech to heel”.

Even prior to 2028, the changing makeup of Congress and the Senate opens doors for some landmark bills to pass and a raft of committee hearings to start. Renowned critic of the tech industry, Senator Elizabeth Warren, is expected to lead the Senate Banking Committee. In September Warren called for a pause in AI development while a new agency is set up to regulate big tech and AI. It also gives Sanders’ “Ban Artificial Superintelligence Act” a chance of passing if resubmitted in January. As my colleague Richard said this time last year, building “superintelligent” AI is the primary aim of all the debt raising and spending, and investors are increasingly questioning whether valuations can be justified or if credible routes to actual net profits can be found through what Large Language Model (LLM) based AI currently offers. Other investigations and committee hearings may include focuses on AI model training data and intellectual property theft; the impact of chatbots on mental health and their culpability in various mass shootings and suicides; and the actions of Elon Musk’s Department of Government Efficiency (DOGE), raising additional concerns for SpaceX and Tesla investors.

Outside of the politics, we also saw another PR gaffe from OpenAI’s Sam Altman. On the Cheeky Pint podcast, Altman said it was “terrible” for people to have RAM at home because it should be prioritised for “maximum utilization in the cloud”, sparking viral memes of derision and disdain early in the week. With Trump’s power to protect the frontier labs curtailed, it’s more important than ever for the labs to avoid unnecessary mishaps and start winning some favour from the public. And in a classic example of trying to bury unfavourable news while something else is going on, Anthropic released their amended S-1 filing on Monday evening. The file was updated to include their Q3 numbers and as widely expected, showed a revenue growth slowdown following the end of “token maxing” and even more compute spending commitments, taking the new total to $895bn. By the end of the week, some large investors were reportedly telling Anthropic that they’ve lowered their IPO valuation down from $2tn to around $1.5tn.  

The fall on Thursday was largely started by hedge funds selling off leveraged long positions in AI and big tech. In total $2.5tn in market value was wiped off the US’s main tech index. Despite this, and what is now four weeks of declines in a row, if you look at the CAPE ratio, a useful valuation metric for assessing whether something is over or under valued, the US market still has a long way to go before valuations reach more rational levels. On Friday, we saw a massive sell off in Asian and Emerging Markets (EM) as the negative sentiment hurt key parts of the AI chain like, Samsung Electronics and SK Hynix. After the Asian markets shut, we did see a rebound in the US, with retail investors being credited for dragging the tech index back up 1.09%. 

In terms of our own portfolios and our view on the outlook, we’ve been underweight in the US and big tech for some time and nothing has happened to change our stance. The market is heavily concentrated around a small number of firms raising huge amounts of debt to chase something that may not be possible or, if achieved, accepted by the public and policy makers. We are more exposed through Asia and EM due to AI supply chain stocks making up so much of the indexes, but tech in Asia appears to be trading at discounts compared to US counterparts, and we still believe in the opportunities posed by the corporate reforms taking place in countries like South Korea. At the end of October our Risk Barometer had its largest swing downwards since Trump’s tariffs, falling 14 points to +0.47. While still in positive territory, it is, in our view, an indicator that investors need to be extra selective and thoughtful when searching for alpha in current market conditions.

Midterms spill over in UK market & oil prices

Our home market was on for a positive week until the US markets opened on Thursday and the risk-off attitude spilled into other regions.

As expected, the Bank of England voted to raise interest rates for the first time in three years. The Bank’s Governor, Andrew Bailey, blamed the war in Iran and its impact on energy prices. The Bank expects inflation to peak next year at 4.9% though they warned it could go higher if things get worse.

Crude and brent oil prices fell around 12% this week after investors read Trump’s embattled demeanour as a sign that he may favour diplomatic ways to end the war in Iran. Reuters also reported that Iran sent a nuclear proposal to Washington via Qatari intermediaries.

However, hopes that Trump would listen to voters and tone down his policy agenda were dashed on Friday when Stephen Miller was promoted to replace Susie Wiles as Chief of Staff. Appointing Miller, responsible for Trump’s hardline immigration policy, indicates the administration has few plans to put any resolution to the conflict through Congress, keeping the outcome of the war down to Trump’s whims. 

Coming up this week:

CoreWeave Quarterly earnings – Tuesday 

AI and tech will come under the spotlight again when neocloud, CoreWeave, release their Q3 earnings on Tuesday. Shares in the company have fallen 55% since their last update. Investors will be assessing their mounting debt obligations, what impact the data centre votes will have on existing and future projects, and whether they’re getting near profitable revenue growth.

US inflation data – Tuesday 

Following last week’s jobs report which showed US unemployment went down slightly to 4.1%, all eyes will be watching Tuesday’s Consumer Price Index (CPI) report to see if inflation has risen once again. Coupled with the latest jobs numbers, a rise in inflation will increase the odds of a rate hike in December, putting more pressure on AI and the tech sector.

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.

The infoshot to help kick-start your week

 

Coming up this week:

US midterms – Tuesday

The final polls suggest Democrats will have enough to comfortably flip control of Congress following Tuesday’s US midterm elections. They also have a narrow lead in many key Senate races. Trump has simply bypassed most checks and balances through executive orders over the last two years, but losing both houses will open a wave of subpoenas and investigative committees, potentially drowning Trump’s next two years in office in litigation and impeachment trials. It may also have repercussions for the AI boom by making it possible for Democrats to pass bills which limit data centre buildouts and impose new regulations on the frontier labs.

The expectation has been for the US and Israelis to increase their attacks on Iran once the midterms are done. The US sent 10,000 more sailors and marines to the Middle East in October and on Friday, Democratic Senator Chris Murphy said he was briefed on the post-midterms war plan, calling it “insane” before adding “it will lead to a devastating escalation and the likely destruction of our commitment to the rule of law.” However, oil prices have fallen today after Axios reported that Trump told Netanyahu he would like to give diplomatic talks more time after the midterms. 

Bank of England interest rate decision – Thursday

The Bank of England’s Monetary Policy Committee meets this week to make their latest decision on UK interest rates. Unlike the Federal Reserve and the Bank of Japan, who both elected to hold interest rates last week, the Bank is widely expected to raise the base rate from 3.75% to 4%. Inflation rose to 3.5% in September, and nothing suggests it may slow down anytime soon so many analysts are expecting this to be the first of four quarter-point rises over the next 12 months.

Last week:

Tech down for third week in a row

Tech stocks fell for the third week in a row as investors reacted to more news around AI spending. Alphabet shares plummeted 12% on Thursday, wiping $500bn off their market value, after they reported negative cash flow for the second quarter in a row and that they plan to spend another $205bn this year on AI investments. They also revealed that AI summaries are really starting to hurt Google’s advertising revenue. Reddit shares also fell after they reported huge declines in web traffic caused by AI. Amazon shares fell after they reported negative cash flow of $42bn and a six-fold spending increase in the last quarter. In contrast, Microsoft suffered a minor fall after reporting they spent $5bn less on AI investments. Earlier in the week, Microsoft announced they would offer buyouts to 60,000 employees, more than a quarter of their global workforce, as AI’s impact on employment continues to become more apparent.

Anthropic’s long-awaited S1, the registration statement US companies must file before they can go public, was filed on Monday. There was a staggering 94 pages of risk factors, including warnings on how the existential risk posed by their technology could impact their brand, insurance coverage and revenues. The numbers enclosed showed a net loss of $80bn for the first six months of the year, and infrastructure agreements that will cost $657bn over the next few years. Revenue increased 14-fold to $16.3bn, however that only covers January to June and precedes the end of “token maxing” by many large tech firms. There was more bad news for the AI boom on Friday when Blackstone warned Anthropic that they may get a junk rating after the IPO forcing them to pay higher yields on their debt.

Tame Autumn Budget pleases markets

The continued rotation away from US tech, plus the rather tame Autumn Budget and some strong corporate earnings led to some small gains for our home market last week.

Andy Burnham said afterwards that he’d have liked a more “radical budget”. The lack of radicalism even helped the share price of slot machine makers like Evoke and Rank Group who were expecting a tax hike on takings far higher than the 5% one they received. Major UK banks didn’t rally but would have been relieved when the profit surcharge was raised less than expected to just 6%.

In a week full of big oil reports, BP and Shell inevitably joined their US counterparts in reporting huge profits for Q3.

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.

The infoshot to help kick-start your week

 

Coming up this week:

Autumn Budget – Wednesday 

With total UK government debt now estimated to be above £3tn for the first time, John Healey will be looking for ways to balance the books when he delivers his first Autumn Budget as Chancellor. On Tuesday, he ruled out raising Capital Gains Tax (CGT) and Prime Minister Andy Burnham has previously indicated there will be no increase to the main rates of income tax, NI or VAT. Instead, UK bank profits look a likely target to help meet fiscal goals. Raising the corporation tax banks pay from 3% to 5.5% could raise £1bn to £2bn a year, and a similar raise on the profits generated by gambling machines could add up to another £460mn.

Energy & tech reporting – Tuesday to Friday 

BP, Shell and Chevron are all expected to post huge jumps in profits as the conflict in Iran continues to push oil prices to record highs. Investors will be looking out for signs that they might start increasing spending plans or whether they’ll prioritise paying off debt and increasing share buyback programmes.

Three more Magnificent Seven firms, Alphabet, Amazon and Microsoft, report their Q3 numbers this week. Capital expenditure and the impact of AI spending on cash flows will once again come under heaving scrutiny as the US’s tech index tries to avoid falling for the third week in a row.  

Last week:

Dip-buying not enough to turn the tide

Following the previous week’s AI sell off, investors started the week buying the dip on Monday. The positive momentum continued for a few days but was dashed on Thursday when the US’s leading tech index suffered its steepest single day decline since June. The sentiment shifted after Meta posted negative cash flow for the first time since 2012 and announced new non-voting shares to raise more capital for AI spending. Meta were also hit by their largest fine yet. A judge in New Mexico ordered the company to pay $25bn after they were found guilty of lying about how they handled user data.

Reports later Thursday morning suggested OpenAI have cut their latest valuation from $1.4tn to $1.25tn. OpenAI declined to comment on why they’ve lowered their fundraising target, but investor fatigue and the growing scepticism around the AI buildout will have played a role.

However, dwindling AI enthusiasm didn’t spread to HR departments last week, with Barclays bank announcing 5,000 job cuts as the company hands over more work and processes to AI. Barclays’ 5% cut in their global workforce is part of their ongoing modernisation plan. According to the bank, AI is simply the “icing on the cake” of the strategy. Nearly two thirds of the job losses target their support functions and developers.

Historic merger moves closer

Elon Musk announced that both SpaceX and Tesla have formed special committees to explore a potential merger. Based on current valuations, the merger would be the largest in history. If Musk can convince 50% of Tesla shareholders to vote for the merger, it would give him greater voting control at Tesla and open the door for deeper synergies between Tesla’s cars and robotics and SpaceX’s engineering capabilities and satellites.

UK inflation and jobs numbers boost rate hike chances 

Our home market fell this week after higher-than-expected inflation data and another surge in the price of oil. The latest reading from the Office for National Statistics (ONS) showed inflation rose more than expected to 3.5%, primarily due to the rising cost of fuel. Unemployment fell more than expected to 4.7%, increasing the chances of a November rate hike by the Bank of England.

Last week’s oil prices will have done little to help challenges around inflation. Brent crude touched its highest price this year. It’s now up around 60% since the US and Israel launched their initial strikes on Iran at the end of February.

Israelis head to the voting booths tomorrow for the first time since Hamas’ attacks on 7 October 2023. Although polls indicate the current alliance between Prime Minister Benjamin Netanyahu and the ultra-orthodox parties lack a clear route to maintaining power, any significant policy change regarding the conflict in Iran or the situation in Gaza is likely to come down to how the Arab parties perform and what role they can play in a governing collation.

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.

The infoshot to help kick-start your week

 

Coming up this week:

AI under the earnings spotlight – Tuesday & Wednesday

AI hyperscaler spending will come under scrutiny again on Wednesday when Meta release their latest quarterly results. Last week’s release of Muse Wonder and Muse Wonderful, which according to Mark Zuckerberg has taken Meta to the “AI frontier”, comes too soon to have an impact on profits, but investors will be looking for signs that Meta’s investment in datacentres and AI infrastructure is starting to generate returns. 

Following an 11% fall during the tech sell off last week, SpaceX will release their latest quarterly earnings on Wednesday. Tesla also publish their Q3 report this week, and we could see some interesting commentary on a potential Elon Musk-led merger of the two firms.

Second round of Brazil’s election – Sunday 

Latin America’s largest economy will go to the polls on Sunday. Flávio Bolsonaro, son of the imprisoned former President Jair Bolsonaro, defied expectations to win the first round two weeks ago and looks likely to secure power.

Bolsonaro Jr has promised cuts to spending and welfare, more oil drilling and investment in the critical minerals sector. His father, who will be pardoned by his son if he succeeds, significantly increased deforestation in the Amazon during his tenure, and a return to more lax environmental policies could have a worldwide knock-on effect that accelerates global warming. If Bolsonaro Jr wins, Trump will have secured another populist right-wing ally in Latin America, leaving Mexico and Uruguay as the largest remaining left-wing governments.   

Last week:

AI sell off

A troubling week for AI shares saw the US’s tech index tumble nearly 4.5% when markets closed on Friday.

Rising US inflation numbers helped trigger the Wednesday-to-Friday sell off. The final inflation numbers before the US midterms from the Bureau of Labor Statistics showed inflation rose to 3.7% in September. The Producer Price Index (PPI) soared well above expectations to 6.3%, the largest increase since December 2022 and more than triple the Fed’s 2% target. Chances of a rate hike have increased on the back of the readings.

Problems in the neocloud sector (rentiers of GPU computing power and AI infrastructure) exacerbated the sell off at the centre of the AI trade. CoreWeave caused a panic when some of their bond yields reached 15% making it harder for the company to borrow more money to cover their spending plans. 11% owned by Nvidia, CoreWeave are very entangled in the circular funding between AI hyperscalers and have large compute contracts with Microsoft, Alphabet, Oracle and Meta. Another Nvidia backed neocloud, Firmus, recently withdrew their IPO listing after plans to build 1.6 gigawatts of AI data centre infrastructure were cancelled. This weekend Microsoft terminated their involvement in the project with Nscale to build the UK’s largest AI data centre in Loughton, Essex, due to power supply issues.

All the turmoil in the AI trade sent investors to more defensive assets and regions, with our home market benefiting and having its best week in six months.

More mixed results for US banks 

We saw some more mixed results from the major US banks that reported last week. JP Morgan and Wells Fargo both missed revenue expectations, whereas Goldman Sachs and Citigroup beat expectations. All were relatively bullish in their comments on the AI boom, and despite the problems in the US economy, they remain optimistic about the health of US consumers and businesses.

Oil prices surge as Trump gets closer to Putin

A week on from Trump’s deal to import Russian diesel, oil prices surged 10% sending barrels of crude and brent over $101 and $110 respectively. On Friday, Trump blocked new sanctions on Russia two days before they were due to take effect. As Trump gets closer to Putin and the divisions between Trump and Zelensky grow, the SpaceX owned Starlink implemented a speed limit on their terminals hampering the effectiveness of Ukrainian drones and the ability to defend against incoming Russian ballistics.

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.

The infoshot to help kick-start your week

 

Coming up this week:

Big banks reporting for Q3 – Tuesday & Wednesday 

Several big US banks, including JP Morgan, Bank of America, Morgan Stanley and Citigroup, are set to release their Q3 earnings. With trading volumes smashing records in Q2, most of the banks heralded the health of the US economy. Three months on, inflation remains stubborn, interest rates have been risen, and US national debt has surpassed the $40tn mark. Analysts will be keeping a keen eye on whether the banks’ optimism has changed, particularly now the US financial sector has fallen more than any other sector in the past month declining around 4%.

Last week:

US markets reach record high as IMF warns about threats to global growth

On Tuesday, the US’s leading index achieved a record high despite the sell-off in bonds. Markets rallied in response to high earning expectations thanks to the trillions of dollars pouring into AI infrastructure. According to Factset, analysts are expecting Q3 earnings growth of 29.5%. Chipmakers Nvidia and Micron are expected to account for more than a third of that growth. Some of this bullishness was dented on Thursday after OpenAI told investors that revenue for this year will be $50bn, $20bn less than estimated in September.

With AI development and the race for superintelligence showing no signs of slowing down, OpenAI CEO, Sam Altman advocated for a light touch regulatory stance in an interview on Monday. He said that the world should just accept “some bad things happening” in exchange for the benefits AI may bring. Later in the week, Axios reported that top executives at OpenAI and Anthropic have been privately preparing for a “day after event” within the next six to twelve months that causes a major public and political revolt against AI.

Speaking in Singapore, International Monetary Fund (IMF) Managing Director, Kristalina Georgieva warned that the AI investment boom, high energy prices and record levels of public debt are threatening global growth. Georgieva said spending on AI as a proportion of GDP will surpass the buildouts for railroads, power grids and telecoms combined, but will widen global inequality due to the limited geographical scope of the AI supply chain. She also warned that IMF research estimates that 40% of jobs will be augmented or eliminated by AI, with this rising to 60% in advanced economies.

Trump teams up with Putin to try to drive down diesel prices 

Oil prices were volatile again last week after tankers were attacked in Hormuz and signs that the US military is considering more strikes on Iran. Prices came down a little after Trump said he won’t attack Iran before the midterm elections in November.

After convincing other G7 nations to release 100mn barrels of stockpiled oil the previous week, Trump struck a deal with Vladimir Putin to immediately release 300,000 tonnes of Russian diesel into the “American and global marketplace”. A further 1.5mn tonnes are set to be released from November. With his poll numbers still through the floor, Trump will be hoping the diplomatic backlash is worth it, and the Russian oil can drive down domestic prices before the midterms. However, the first 300,000 tonnes literally just covers around half a day of US diesel consumption, so its potential price impact looks questionable.

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.

The infoshot to help kick-start your week

 

Coming up this week:

Fed minutes – Wednesday 

Friday’s Bureau of Labor Statistics (BLS) report showed the US only added 29,000 jobs in September, significantly below the 90,000 that was expected. July and August’s gains were also revised downwards. Analysts will be looking out for any notes on what the Fed is considering if the US jobs market starts falling when the latest FOMC minutes are released on Wednesday. Declining jobs numbers may limit the Fed’s ability to combat inflation through interest rate hikes.

Last week:

Party conference offers policy plans

In his first conference speech as Labour party leader and Prime Minister, we got several important policy updates from Andy Burnham. From April 2030 the government will finally “rip the plaster off” and amend the pensions triple lock to not necessarily keep pace with workers’ earnings. Electoral reform is back on the agenda, and a new in-out EU referendum could be included in the next Labour election manifesto. Prior to the conference, the reboot of Help to Buy to become the Your First Home Scheme sent housebuilding stocks up on Monday.

Away from the conference and in markets, the UK’s leading index had its worst week since April falling 2.2% due to turbulence in the bond markets that increased borrowing costs and yields. Another sharp sell-off in government bonds pushed the 10-year yield to its highest level since 2007, and the 30-year yield briefly went above 6% for the first time in nearly three decades.

G7 to release 100mn oil reserves in response to Trump threat

Following Trump’s threat to stop US diesel exports, G7 leaders agreed to release 100mn barrels of diesel and crude oil from their stockpiles. They’ll release 50mn barrels of each in an attempt to ease prices. Here in the UK, diesel reached a record at the pump price of £2 a litre on Friday. The price of crude did fall following the news but it’s still up 38% since the war in Iran began in February.

There was some good news related to the volume of oil coming out of the Middle East. According to reports, data apparently shows volumes have almost returned to pre-war levels. Shuttle tankers, pipelines and US naval escorts have helped get more oil moving but how long it remains this way is debatable given the possibility of the US escalating the conflict again after the midterms.

“Morally-binding” accord staves off regulation for now

On Tuesday Trump and the leaders of various AI companies signed a voluntary accord on AI development and safety. The accord contains no actual guardrails or new regulations around AI safety and relies solely on “morally binding” self-policing.

The day before, chipmaking giant Nvidia announced an additional share buyback of $150bn. They will now repurchase a record $235bn shares through 2028. They also announced their Open Agent Safety Platform aimed at improving the security for third-party systems that deploy AI agents.

The confidence signals sent by Nvidia’s buyback expansion were countered somewhat when some of Anthropic’s IPO prospectus was leaked the next day. 80 pages of the IPO S-1 filing are dedicated purely to the risks of the technology, with only 48 focused on the actual business. Amongst the risks were “self-preserving behaviours” and the abilities to “resist shutdown” and “conceal or manipulate information”. We also got some financial numbers for 2025 which showed the company made a net loss of $42bn, and that a quarter of its revenue that year came from just two undisclosed clients. With $518bn in cloud computing and infrastructure obligations coming up, the full prospectus will come under heavy scrutiny when it’s finally released. Anthropic are still set to target a $2tn valuation when they launch their IPO in November.

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.

The infoshot to help kick-start your week

 

Coming up this week:

Labour Party Conference – Monday to Wednesday

John Healey will give his first speech as chancellor at the Labour Party Conference today. Exactly a month before he’s set to deliver his first budget, he’s expected to announce a “new age of industrialisation”. Many are anticipating a relatively light autumn budget with big decisions being put off until the spending review next year.

Figures from the Office for National Statistics (ONS) showing UK national debt reached £18.3bn in August, £3.5bn more than expected, will put more pressure on Healey and Burnham’s government to stick within their fiscal rules as they go hunting for growth.

JD Wetherspoon earnings report – Friday 

Back in July, JD Wetherspoon issued a profit warning as the higher cost of food, labour and energy started eating into their numbers. Drinkers are still coming through the doors and there should have been a bump in footfall during the World Cup, so the latest results will shed an interesting light on the impact soaring energy prices and inflation are having on the UK hospitality industry. 

Coming up this week:

US-China Washington summit

The latest US-China summit went as expected with pageantry being prioritised over policies. The trade truce between the two nations was extended by two months and they agreed to establish a “communication channel” to report AI incidents before their next meeting in November.

While all the major AI moguls dined in the White House, markets reacted positively to the lack of new guardrails around AI development despite a fresh batch of stories containing more examples of agents going off script and hacking government institutions, like the Australian healthcare database. The leading US tech index is now up 2.45% since former Anthropic researcher Jacob Coxon’s tweets on the existential threat from superintelligent AI went viral three weeks ago.

Meta’s share price soared after its new personal AI assistant, Muse, went top of Apple’s App Store before going into reverse on Friday after Goldman Sachs raised doubts about hyperscalers abilities to generate returns on their massive capex. Goldman estimated AI users need to start spending “$1tn annually” for firms to get any solid returns on their investments.

In a worrying development for the AI boom, Oracle issued a “force majeure” notice to Blue Owl Capital regarding their $165bn Jupiter data centre project. Oracle want to be able to delay rent payments if the project is delayed past 2028. A number of data centre building and services firms have delayed their IPOs in recent weeks as the public backlash against data centres threatens to curtail development plans across the US.

Costco earnings beat expectations as oil ban looms

Mega retailer Costco Warehouse beat revenue estimates in their latest quarterly earnings report. Their low-price bulk model and discounted fuel drew in more customers as US consumers try to cope with the inflation pressures caused by the war in Iran.

There were reports that the US administration is considering an oil export ban to get domestic prices down before the US midterms. Trump endorsed the idea saying, “I’ve said let’s not send out the diesel.” An export ban would drive up prices across the globe, and particularly in Europe.

Inflation worries cause another bond market crisis

Concerns about inflation led to another rout on the bond markets with yields reaching new highs once again. The sell off saw the 30-year US treasury bond yield reach 5.5%, its highest rate since June 2004. Japan’s 10-year yield rose to its highest level since August 1996. Here in the UK, 10-year government bond yields are now sitting at a 19-year high of 5.38%, putting more pressure on Healey’s upcoming budget.

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.

The infoshot to help kick-start your week

 

Coming up this week:

US-China summit in Washington – Wednesday to Friday

The soon-to-be-expiring trade truce and the global energy crisis might have to take a backseat to AI when Trump and Xi meet this week in Washington.

After a week of nonstop press coverage that has seen the existential threat from superintelligent AI enter the mainstream discourse, investors will be watching out for any agreements that allow for a mutual ‘slowdown’. On Sunday, Treasury Secretary Scott Bessent said a new AI safety notification mechanism has been proposed for the two leaders to consider during the summit. While it looks unlikely either Trump or Xi will be willing to put further guardrails in place, according to leaks this weekend, some senior officials in the Trump administration are frustrated about his refusal to take the subject seriously. It is suggested they may try to convince Trump to push for more oversight and international agreements with China.

Costco earnings report – Thursday 

Mega retailer, Costco Wholesale will provide a valuable insight into the health of US consumers when they release their quarterly earnings on Thursday. US drivers have been turning to Costco’s warehouse club as they stock up on fuel at discounted prices instead of heading to the pumps for regular top ups. Costco recently started rationing motor oil and it’ll be interesting to see how supply side pressures impact their expectations for earnings going forward.

Last week:

Tech bounces back from the apocalypse 

Across the globe, tech stocks and shares of firms involved in the AI supply chain fell last Monday after the leaders of the US AI frontier labs all called for a slowdown in AI development.

Trump dismissed the calls, calling them a “sick conspiracy “and posted the only “guardrails” AI needs are a “STRONG AND SMART (High IQ) PRESIDENT”. Nvidia CEO, Jensen Huang, also rejected the calls, speaking at the Salesforce Dreamforce conference, “The market forces are already there. We don’t need any new laws. We don’t need new regulations.” The comments from both seemed to reassure investors that no slowdown was imminent, stabilising markets on Tuesday.

Energy crisis deepens

The prices of both brent and crude oil fell by more than 5% last week but there were more worrying signs around global supplies.

Mike Wirth, Chevron’s CEO, said all the mechanisms to help control prices and prevent a supply risk “have been largely played, and we don’t have nearly the buffers in the system that we did when it [the war in Iran] began.” The International Energy Agency (IEA) warned we won’t see supplies return to normal until 2027 and said the “global refining system is stretched to the limit”.

With the US midterm elections just six weeks away, polling by CNN this weekend showed Trump’s current approval rating for gas prices is at minus 80%. TTF natural gas is now up 141% since the war began. The spike in jet fuel, up 85%, has forced several US airlines to start cancelling flights and adjusting schedules around Thanksgiving and Christmas.

As widely expected, the Federal Reserve voted to increase interest rates for the first time in three years to help combat inflation. Markets reacted remarkably well to the news, with many aware that a higher two or three basis point rate hike might actually be required to start tackling the inflation problem.

Canada offered chance to become EU associate member

European Commission President, Ursula von der Leyen has proposed that Canada should become the EU’s first “associate member”. Canadian President Mark Carney welcomed the proposal on Thursday and listed AI, critical minerals, defence, energy security and the space sector as the key areas Canada and the EU could cooperate more closely on. Trump labelled the proposal a “hostile act” and said he will put “very serious tariffs or stop trading with Europe, on many things” if membership status is granted.

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