Unlimited pools of money

Bond yields and AI capex continue to dominate the narrative in financial markets. Hot CPI sends the dollar flying and tech stocks sliding. CoreWeave's stock plummets after its bonds hit distressed levels. Korea back in focus as their stock index tumbles at a rapid rate. Correlation on the S&P 500 at record lows, but index remains resilient. Gold choppy as pulled from both sides, down 1% on the week. Bond yields pulling back from record highs, despite higher inflation. Houthi strike on Riyadh airport sends oil higher, while President Trump warns he may still use the "mother of all bombs" on Iran after the midterms. Tesla unveils flying Roadster, amid reignited talks of SpaceX merger.

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Old fashioned risk off

While correlations between asset classes have been historically unusual of late, this week we saw a return of what could be referred to as old fashioned risk off moves. Stocks moved lower on inflation and fears around extreme AI spending. Investors turned to classic safe havens, bonds and metals. On top of the hotter than expected CPI print that landed midweek, CoreWeave sent shockwaves through the AI and tech ecosystems that resulted in a sharp drop in tech indices. This opposing force outweighed recent factors that have sent yields to levels not seen in decades. Bonds pushed higher and gold recovered from a drop earlier in the session, after Headline CPI came in at 3.7% vs the 3.6% expected.

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A co-founder of CoreWeave raised eyebrows this week as he outlined their goal to maintain high-grade ratings for their debt, allowing the company to access the money backed by insurers' capital. Brannin McBee outlined how that pool of cash "is unlimited. Like, that's all the money in the world that sits in the insurance tranche". The reality as it stands is far different though. CoreWeave's bond yields have hit 15%, which sends them through what would be labelled subprime all the way to technically distressed. Given the increasing interdependence between tech leaders, in this instance the group renting power to developers of AI models, any hit in one sector quickly flows down the chain. As such, Nvidia CEO Jensen Huang was forced to step up and defend the health of its key supplier on the back of the selloff, "CoreWeave's strength is improving every day". Job done or just temporary reprieve?

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Next week

China dumps another round of data on Monday, including GDP, industrial production and retail sales. The UK will release its unemployment figures on Tuesday, followed by CPI and PPI on Wednesday, then retail sales on Friday. From the US we will be watching for building permits on Tuesday, and initial jobless claims on Thursday.

US third quarter earnings season is picking up steam. Highlights next week include Netflix in the after-market session on Tuesday, and IBM and Tesla in the after-market on Wednesday. Go well out there.