Rolled OATs

France remains in focus this week, as their fiscal crisis continues to weigh on bond markets, despite attempted reassurances from the government. Plans revealed for the US to launch an intense three-day campaign in Iran, but not before the midterms, pushing energy markets higher, oil +4% on Thursday. Hormuz traffic at two-month lows. Nvidia eyeing an eye-watering $6 trillion valuation as key US indices hit fresh all-time highs, before a pullback late in the week. Said pullback sparked by alarming revelation of $20 billion gap in OpenAI's reported revenue. Bonds choppy, yields still hovering around levels not seen since 2002. Metals likewise under pressure, as higher oil, yields and USD provide a trifecta of headwinds. That same trifecta weighing on crypto markets too, Bitcoin -6% on the week. EURUSD sliding to 17-month lows.

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Because they're worth it?

French investors have been reallocating funds from government to corporate bonds, effectively placing more faith in big multinationals than their own government. As confidence in government debt has fallen to historic lows, high-grade company debt has fast become more appealing. In particular, French companies with high levels of international exposure are now regarded as relative safe havens. Companies like L'Oreal, Air Liquide, TotalEnergies and LVMH Moet Hennessy Louis Vuitton, who generate large portions of their revenues outside France, have all seen strong investor demand of late. Quite incredibly, close to 40% of high-grade company debt in France is now trading as if safer than OATs.

French banks, however, are not party to the phenomenon at this stage. Their exposure to the sovereign debt market means that they are part of the crisis too, rather than an escape from it. Société Générale shares, for example, are down more than 25% over the last two months. Finance Minister Roland Lescure attempted to ease fears this week, telling the BBC that "people want the French paper, but they want it more expensive than they did". In essence he is pointing to the fact that while yields are flying, sales of bonds remain strong. He did admit however that "public deficit is alarming", but again assured the public that the current budget will pass and allow the government to act immediately to improve the situation.

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OpenAI revenue gap

Losses in the tech sector overnight were fueled by a report from the FT revealing a $20 billion gap in OpenAI's revenue projections. The resulting market moves can be seen as a warning borne out over the risk of cascading failures sparked by the increasingly important AI sector. It also highlights that as the large private labs move closer to IPOs, the figures and accounting methods on which their lofty valuations are based will come under increased scrutiny. The discrepancy in question came mainly from a difference in the reporting of revenue from partner sales. Anthropic reports the full amount as revenue, with the share going to the provider as an expense. OpenAI on the other hand records only its share of the sale as revenue. Thus while it was a headline grabbing difference no doubt, it was fairly easily explained this time. It is however, a dent in confidence that other reported numbers, including profits, can be relied on. The reported imminent withdrawal of Firmus Grid Ltd's application to list on the ASX has also signaled that investors in the space are becoming increasingly discerning.

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Next week

Trade will be thin on Monday, with Japan off for Health-Sports Day, and the US celebrating Colombus Day (stocks remain open). On Tuesday the RBA will release their Meeting Minutes, giving further indications on the likely velocity of further hikes. Wednesday brings a data dump from China: CPI, PPI, and Trade Balance figures. Later in the session we get CPI from the US, as key as ever of course in determining the actions of the Fed. Key too in that regard will be Retail Sales, PPI and Jobless Claims on Thursday. As it stands, markets are pricing the chance of another move this month at 19%, with December at 80%.

US earnings season gets under way for Q3 with, as always, the big banks kicking things off. Goldman Sachs and Wells Fargo among others report in Tuesday's pre-market session. Bank of America and Morgan Stanley will release their quarterly reports during Wednesday's pre-market. Go well out there.