Trading Day: Stocks still in bonds’ grip

By Jamie McGeever

ORLANDO, Florida, Sept 29 (Reuters) – US and world stocks slipped for a second day on Tuesday, pressured by elevated bond yields, and investor jitters around US inflation figures and potential quarter-end volatility on Wednesday. Bearish sentiment was tempered by falling oil prices.

In my column today, I look at the cracks that are beginning to appear in the AI financing edifice. Bonds issued to fund data center construction are coming under heavy pressure – but is this a warning of more turbulence ahead, or a ‘buy’ signal?

Today’s Key Reads

• EXCLUSIVE-Anthropic’s IPO prospectus shows sweeping AI vision, surging costs

• Trump says working with Xi on AI would hurt US companies

• ‘G force’ driving world markets may need Fed and bond brake: Mike Dolan

• Battered bond market braces for a new era of interest rates

• China unveils rate cut, mortgage subsidies to spur growth

• Today’s Key Market Moves STOCKS: Japan -0.6%, Europe flat, UK -0.5%. Nasdaq -0.1%, S&P 500 -0.2%, Dow -0.3%.SECTORS/SHARES: Seven sectors on the S&P 500 fall, four rise. Energy -0.9%, utilities +1.1%. US chip sector +1.3%. Apple biggest loser on the Dow, -2.7%. Carnival biggest gainer on the S&P 500, +13%.FX: Dollar +0.3%, strongest in 2 months. Aussie dollar -0.7% after RBA hike, Norwegian krone -1%.BONDS: Selloff pauses in UK and Europe, although French-German spread posts widest close in 14 years. US 30-year yield 5.62%, highest since 2002. Entire US curve within 5 bps of trading above 5%.COMMODITIES/METALS: Oil -2.5%, gold +1% .

Today’s Talking Points:

Anthropicology

The Reuters exclusive report on Anthropic’s propsoed IPO makes for fascinating reading. The AI giant’s revenue grew 12-fold last year, but losses exceeded $8 billion on an operating basis and more than $40 billion on a net basis, according to the prospectus documents for a prospective IPO that is targeting a valuation of more than $2 trillion.

Essentially, the company is spending big, and losing money. Or it has been until now. The hope is that revenues continue to grow at an ever-increasing rate, overtaking the huge spend, and justifying the eye-popping IPO valuation. But the threat of cheaper Chinese models looms large. Anthropic’s costs and investment outlays mean it might struggle in a price war, if it comes to that.

Consumer blues

It’s a conundrum. The US economy is expanding at an annual pace of around 8% to 9% in nominal terms, and the unemployment rate is 4.1%, a historically low rate essentially reflecting full employment. Yet Americans are gloomier than they have been in years. Consumer confidence slumped this month to the lowest since 2014, and are more insecure about the jobs market than they have been in more than five years.

What gives? Consumer confidence has for years been a poor leading indicator of consumer behavior, and by extension, wider economic growth. Spending has held up, thanks to robust spending by the wealthy, growth is strong and corporate profits and stock prices have never been higher. Maybe a “mean reversion” is overdue?

No quarter given

A tumultuous third quarter draws to a close on Wednesday, a three-month period that saw, in no particular order: a 40% rebound in oil, record US diesel prices, the biggest quarterly slump in corporate bonds since 2022, a crashing wave of AI “doomerism,” the Fed raise interest rates and US and global government bond yields hit their highest in 20 years. Oh, and in among all that, stocks hit record highs.

It will be difficult for the fourth quarter to be as seismic, but investors should buckle up. Worries over AI – financial, and its existential threat to humanity – are only likely to deepen; the Fed is on track to continue its tightening cycle; US midterm elections are looming; and the US war on Iran is still raging. Can equities shrug all that off again? The third-quarter earnings season that kicks into gear in the next few weeks will be revealing.

What could move markets tomorrow?

• Japan retail sales (August)

• China ‘official’ PMIs (September)

• Germany CPI inflation (September, prelim)

• US GDP (Q2, final)

• US PCE inflation (August)

Want to receive Trading Day in your inbox every weekday morning? Sign up for my newsletter here. Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.

(Reporting by Jamie McGeever; Editing by David Gregorio)

Brought to you by www.srnnews.com

Click here to read the full article