What happens if AI growth slows?

00:00:00: Fear.

00:00:00: This is what investors feel this morning as rising oil prices, prospects of higher interest rates and growing doubts around the AI boom way on market sentiment.

00:00:10: Remember?

00:00:10: The European Central Bank hiked its interest rate last week.

00:00:13: The Fed and the Bank of Japan are expected to raise theirs this week adding pressure over the fragile markets and technology heavy indices which so far health-carrying markets' higher economies resilient to rising energy prices could eventually bear the brunt.

00:00:30: AI-led correction while rising energy prices which skis the rest.

00:00:34: So welcome, you're watching Swiss Coats daily market talk is fourteenth of September.

00:00:40: I'm Ipeco Scaradeschkeyer.

00:00:41: today i will discuss what's driving the markets?

00:00:44: What's driving asset prices and what could be next steps.

00:00:47: but before I do as always please keep in mind that opinions are my own this not financial advice.

00:01:02: So the week starts on a bearish note, adding to nearly three percent rise in oil prices this morning.

00:01:08: On heightened Middle East tensions and bad news from the region is the news that leading AI model providers like OpenAI and Anthropig are today willing to slow down the investment of their models.

00:01:20: as several employees in these companies resigned over past days or weeks they were highlighting rising threats humankind.

00:01:32: Well, that naturally brings up the question of who will pay the massive AI bills then because these two companies are right in their middle off investment circles.

00:01:42: circular deals remember?

00:01:44: OpenAI for example has reportedly committed to a twenty year lease for more than four gigawatts of data center capacity with NVIDIA providing credit support for nearly hundred billion US dollars.

00:01:57: Anthropic on the other hand infrastructure deals, including a twenty year four hundred megawatt lease worth about nineteen billion US dollars and many companies announced deals to invest in each other or finance.

00:02:11: Each of the businesses around these two companies open AI.

00:02:16: an anthropic sucks were sold.

00:02:18: bonds are issued.

00:02:22: So if the AI race slows materially, The key question becomes who pays for all that infrastructure?

00:02:28: Because the leases debt and power commitments remain even expected to compute demand.

00:02:33: And revenue growth slow.

00:02:35: And that could obviously bring credit risk increasingly into the AI story, particularly for highly leveraged data center operators and lenders exposed to projects build on aggressive assumptions about future AI demand.

00:02:49: as a time they interest rates hence the bargain costs are expected to rise.

00:02:53: What's interesting in all this is that the slowdown an AI may come not because of technology or out-of-cash investors won't play along but it actually actual people who actually develop these models.

00:03:06: And that's the scary part, so imagine this hour mood in the markets this morning?

00:03:11: The Korean Cosby Index kicked off with a more than two and half percent sell-off At the time.

00:03:17: I'm talking here this morning on fears that slower AI growth would hurt demand for Korean memory chips.

00:03:23: Then SoftBank tanks more than ten percent this morning at the time, I am talking here on unexpected and these quite catastrophic news from investors.

00:03:33: open AI will slow down development of its new models And eventually postpone it's IPO to next year.

00:03:39: To deal with security issues.

00:03:41: first The Nikkei retreats to the lowest level since guess it's this year.

00:03:46: And again, the fear is real if major markets across globe could weather Middle East tensions and rising energy prices as well?

00:03:54: If Asian-American and European companies could print such strong earnings last quarter despite an ugly geopolitical, fiscal and trade backdrop where was?

00:04:04: because of AI boosted investment growth and productivity gains.

00:04:09: And not only in the US, mind you!

00:04:11: There's European Central Bank Chief Kristin Lagar said last week that even the European economy is benefited from AI investments and AI-led productivity gains.

00:04:20: The United Kingdom economy also printed a better than expected growth last Friday... ...and expectations that the UK's growth would slow in the second half of this year ease thanks to AI-legged growth & productivity gains.

00:04:35: If AI hopes.

00:04:36: so what's there left to be happy about.

00:04:38: Because the reality beyond futuristic dreams, exciting AI capabilities and productivity gains and growth that comes along with it and space data centers is quite ugly.

00:04:49: we have wars trade frictions disrupt global roads exploding government debt levels a stark cost of living crisis And no an insight towards trade tensions and rising energy prices and rising inflation worries.

00:05:03: On the contrary this week will most probably bring more bad news to do higher than good ones.

00:05:08: On Wednesday, the Fed is expected to announce its latest monetary policy decision and maybe hike interest rates because last Friday's CPI data from the US came in close expectations with however a slightly higher core CPI read on a monthly basis And the latter boosted the fed high expectations also With the fact that the energy prices are rising and inflation will look worse before it looks better in the coming months.

00:05:33: so activity unfit futures assesses this morning nearly an eighty-seven percent chance for a twenty five basis point rate hike from the Fed after last week's CPI release.

00:05:44: On Thursday, The Bank of England is expected to keep its rates unchanged.

00:05:48: Encouraging growth data from UK and high inflation actually suggests that The Bank Of Englands next move will probably be a raise hike but The Bank first before they adopt their monetary policy to the UK's new fiscal reality.

00:06:05: Then on Friday, the Bank of Japan is expected to hike its interest rates too.

00:06:10: If it didn't, yen would take a very bad hit indeed and I am not sure that the bank could afford that.

00:06:15: And i'm not sure if this will be great for Japanese relations with US and Mr Besson's financial support in reversing Yen's bleeding as such.

00:06:24: This morning we see that U.S dollar is higher against most majors.

00:06:28: The rising oil prices and needful safety are supportive.

00:06:33: The euro dollar is sharply down.

00:06:37: On the other hand, the pair are testing a hundred-day moving average to the downside as rising oil prices and eventually slower AR advance would undermine growth outlook for the Euro area economies.

00:06:48: Then the dollar again rebounds on a broadly stronger US dollar and could continue to rebound until the BRJ decides.

00:06:55: The latest sell off remained limited near the one hundred fifty three level.

00:06:59: mind you that level could be retested and broken this week if an only if the Bank of Japan raises an interest rate and hence add further normalization.

00:07:10: The good news is that higher Japanese rates won't necessarily eco negatively across global risk assets as other central banks around the world are also tightening their monetary policies to deal with higher inflation, making the rate differential between them and Japanese bonds shrink less.

00:07:29: But of course if the Fed decides to stay pat for example well we could indeed see the rug pull from under defeat off the global risk assets.

00:07:37: I still think and hope that someone will tell Mr Trump and the US administration that letter would be worse!

00:07:43: For his midterm elections then a twenty-five basis point hike from the fed Elsewhere.

00:07:49: gold is under pressure this morning as rising prevent investors from seeking refuge in the non-interest bearing yellow metal, and even the Swiss franc is unable to provide safety to investors this morning.

00:08:01: So moving forward, investors could be encouraged to take some risk off of table until we see more clarity on how higher yields combined with a slower AI led growth and rising energy prices would impact valuations around correction, and consolidation.

00:08:23: And the technology-heavy indices like the Korean Cosby Index ,the Taiwanese Thai X & American Nasdaq could be impacted more severely than others.

00:08:33: in case of a technology let's sell off while indices less exposed to technology will also remain under pressure rising oil prices and prospects for higher borrowing costs across the globe.

00:08:45: So as the circle narrows, hard commodities and energy and minor rich indices could actually be a good place to hide.

00:08:53: And wait in the sense we see that the future's are only once pointing at slightly positive starts too what could be an ugly week.

00:09:02: so this is all for this Monday.

00:09:04: I'm Yipega Skardeshkaya.

00:09:06: thank you for joining me.

00:09:07: Thank You For All Your Beautiful and Supportive Comments!

00:09:11: This episode of Market Talk has been helpful and it's been insightful to you.

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00:09:41: So I will meet again tomorrow, until then good day

00:10:00: trading!