Tech under pressure

00:00:00: Hi and welcome to Swisscodes, daily market talk.

00:00:03: It's Tuesday the twenty-third of June.

00:00:05: technology stocks are facing renewed scrutiny as concerns resurface over excessive AI spending rising debt financing and stretch valuations.

00:00:15: Meanwhile European stock stopped underperforming their technology heavy US peers in the month of June As falling oil prices ease inflation concerns for the euro area, soften European Central Bank expectations and improve outlook.

00:00:32: Also, helping investors diversify away from AI in a setup where both equity and corporate bonds are increasingly running on AI spending.

00:00:42: So we will talk about that at Britain's new leadership but before.

00:01:02: So oil prices continue to fall on the back of encouraging news regarding the peace deal that U.S and Iran are trying to engineer together, encouraging in a sense that Iran says they have made major progress during negotiations over past few days.

00:01:18: As a result US crit slipped below its two hundredth day moving average yesterday at near seventy four point eighty dollars per barrel level.

00:01:30: our decline in oil prices pulled the European yields lower yesterday, with expectations that a sustainable decline on energy prices should tame inflationary pressures and the need for more ECB tightening.

00:01:44: And DDCB Chief Christine Lagarde also said yesterday that the euro area inflation is expected to return toward Somehow, tempering the fears that the European Central Bank would be entering a fresh policy tightening cycle.

00:01:59: That would hurt to growth outlook for the region.

00:02:02: Now ECB is still expected to hike its interest rates one more time before this year ends.

00:02:07: but that's already priced in!

00:02:09: So The Eurodollar fell at their lowest levels and more than three months in yesterdays trading session on back of this growing divergence between a more hawkish Fed with his new chair Mr Kevin Walsh determined back to the two percent target and softening ECB expectations thanks to the falling oil prices as it does in the Middle East seem The stock's six hundred index is now willing to extend its case to fresh, all-time high levels.

00:02:37: and the latter could be possible as a technology appetite is well-blaying.

00:02:41: Because this week started on strong footage for Asian technology indices but Nasdaq hundred failed to hold onto that optimism!

00:02:49: The Index was pulled lower yesterday by big technologies stocks as news that SpaceX which not yet in the index btw said it was looking to borrow upto twenty billion US dollars via bomb Bond sell-off.

00:03:02: Investment grade bond sell off, by the way quite unusual for a company that is burning cash.

00:03:07: but seemingly The recent IPO did not suffice to assuage the companies.

00:03:11: funding needs To tell how much money will be burned on their way to Mars.

00:03:15: So SpaceX share fell more than sixteen percent yesterday On the news dwarfing the post IPO rally to less then fifteen percent.

00:03:23: Where fifteen percent gain on the IPO's price Is already huge given that the company's valuation remains massive in terms of traditional metrics like price to earnings ratio, prices sales ratio and so on.

00:03:36: Again, SpaceX is not yet part of NASDAQ indices but the fact that it's jumping on the bond train to fund excessive AI and infrastructure spending feels early.

00:03:46: year worries about the big technology spending too much on AI infrastructure.

00:03:51: And their spending is increasingly financed by debt.

00:03:55: In that matter Morgan Stanley for example expects global AI related borrowing to surpass half a trillion dollars this year meaning indices are increasingly dominated by AI theme as well.

00:04:09: That's why original thematic diversification could perform better when technology worries wise at a time valuations or sky high and debt is rising Now.

00:04:19: remember, I was saying a few weeks ago that the European stocks would become interesting once the Middle East settles and once oil prices start falling sustainably.

00:04:29: It seems today we are getting to that point.

00:04:32: indeed The stock six hundred stopped underperforming their S&P five-hundred this month in June along with falling oil prices And the hawkish shift in Fed's policy and rising US Seals could further back this rotation from technology heavy

00:04:46: U.S.,

00:04:46: to technology poor, European indices.

00:04:50: I would however watch the US dollar's appreciation that could jeopardize part of declining energy prices for Europeans, but now it is quite clear to further catch up from European stocks on their U.S.

00:05:02: peers and deeper downside correction in the technology-heavy indexes including the US and Asia's technology heavy indexes down by more than eight percent at this time.

00:05:14: we just had news that trading there was halted due a massive sell off back to Europe and yields.

00:05:20: Guilt yields in the UK fell yesterday after the resignation of Keir Starmer, who handed over to Andy Burnham.

00:05:27: Burnham will be taking the reins off the country in September and is now putting together his new cabinet one that would ideally please guilt investors by including figures who favor fiscal discipline in the country running on rising debts facing a declining appetite from investors and some spectacular fiscal policy mistakes, the most memorable one being less stressed mini-budget crisis which actually forced the Bank of England to step in to prevent a meltdown into UK's whole pension system.

00:06:01: And today is an important day because it marks the tenth anniversary of Brexit referendum!

00:06:06: The UK's borrowing costs have gone through their roof over the past decade... day is close near the full point.

00:06:18: eighty percent double.

00:06:20: As such, the UK government now spends roughly eight to nine percent of its revenues on interest payments.

00:06:26: Growth is bleak, productivity is declining and despite Brexit immigration has remained elevated.

00:06:32: And worse!

00:06:32: The composition of migration has changed with fewer high earning European workers that were sent home and a larger share naturally of lower income migrants raising concerns about tax revenues and long-term sustainability of public finances in the UK on top of weak productivity growth.

00:06:49: To make matters worse, the UK government seems determined today to ensure that last profitable businesses there leave ever higher tax burdens.

00:07:01: Now, I'm looking particularly at the North Sea oil and gas sector here where repeated windfall taxes have raised serious questions about the UK's attractiveness as a place to invest and do business.

00:07:12: So all in all ten years after The Brexit referendum Brexit still remains A powerful reminder that political slogans are easy but rebuilding growth Productivity And public finances is much harder Again, Gills gained yesterday after the resignation of Kiyostama which shortened a period of leadership uncertainty in the UK.

00:07:33: But the composition of Mr Burnham's new cabinet will keep guilt traders busy in coming months because government's manoeuvre margin is so narrow today and UK bondholders' patience running thin that whoever comes to office must make sure prosperity comes from improved productivity sustainable debt.

00:07:56: As per Stirling, I expect the downside pressure to prevail on back of political uncertainties into this fall.

00:08:03: Cable has rebounded from the one-thirty two level which is a critical Fibonacci support for second time this year once in April and once June.

00:08:13: but falling below this level will send the pair.

00:08:23: That's my base case scenario unless Andy Burnham comes with a magical recipe that would turn around things for the UK and make UK great again.

00:08:31: So this is all for today, I'm Ipek Oskar Deshkaya And thank you for joining me.

00:08:36: Thank you to all your beautiful and supportive comments!

00:08:40: This episode of Market Talk has been helpful and it was insightful so please do not hesitate to leave your comment your reactions and your questions below as usual.

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00:09:11: So I will meet again tomorrow and until then good day.

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