Bonds, oil & earnings battle for market sentiment

00:00:00: European debt concerns, expensive energy and rising bargain-cost leave investors around the world with fever places to hide while Japan's attractive heels threaten to pull capital back home.

00:00:12: AI remains a strong source of growth obviously, but strong revenues at model developers do not automatically justify every single infrastructure deal or IPO valuations.

00:00:23: Now earnings could offer a sweet escape from the uncomfortable macro picture off-the moment without however making the broader economic political and geopolitical setup headlines more convincing.

00:00:36: So the question today is not whether profits are growing on individual level, but whether they can grow fast enough to carry everything else on their shoulders?

00:00:46: Welcome to Swiss Coats Daily Market Talk!

00:00:49: Today it's Tuesday, the twentieth of October.

00:00:52: I'm Ipeko Skardishkeya.

00:00:54: We will talk about how latest news fit into the broader global picture and what that could mean for asset prices moving forward.

00:01:01: But before we do And as always Please keep in mind that opinions are my own and this is not financial advice.

00:01:14: So the week started in a bad mood, as French protestors in the headlines along with spreading stress into other European nations including Italy and Portugal.

00:01:26: Bond yields across the EU rose yesterday, including German ten-year bond yield as spread between Germany and other major European bond yields just kept widening reflecting that stress mounting right now in Europe.

00:01:41: France will obviously remain the focal point.

00:01:43: today was short term measures to calm down this street protests and street nerves, but investors will hardly return to French bonds as fiscal and political risk loom.

00:01:54: Note that even if the actual government comes up with a budget plan next year's presidential elections in France could wipe out whatever is decided today.

00:02:03: so this situation will keep investors nervous at least until next years french election!

00:02:09: That's end of april beginning of may.

00:02:11: Now, the turmoil in European bond markets is certainly helping cool off the sailing pressure across Atlantic Ocean.

00:02:18: US budget concerns and spiraling debt are also looming.

00:02:22: but those headlines have been droned out by images of burning cars and burning historic buildings... ...in France!

00:02:30: Last

00:02:30: U.S.,

00:02:31: ten-year yields still rebounded yesterday from levels close to a five percent level decision before meaning that capital from EU bonds didn't necessarily flow into America.

00:02:41: But what's interesting is that today, Japanese twenty-year bond auction attracted the strongest demand on record according to latest news from domestic Japanese investors.

00:02:53: Attractive JGB yields seem to have whetted Japanese investor appetite for homegrown debt just as foreign alternatives look increasingly sour.

00:03:02: and if that trends gathers space it could mark end of cheap global money and the implications of that could be negative for global equity markets because higher the yields, lower their risky asset valuations around the globe.

00:03:20: Now a good news is that ample liquidity from elsewhere can counterweight that negative impact on the Japanese drying liquidity meaning we may not see sharp sell-off due to yen carry unwind but I'm afraid now witnessing death near zero rates one pillar of cheap global money.

00:03:39: This morning, Japanese ten-year yield eases further to the two point ninety percent level but the Nikkei index is difficult to cheer up.

00:03:47: U.S.

00:03:47: technology stocks on other hand rebounded yesterday as dip buyers returned after a heavy week of sell off.

00:03:53: news that Anthropik is now in talks with N scale which For a US dollar worth of a deal, somehow ease tensions across U.S.

00:04:05: chipmakers because these deals obviously mean data center expansion which in turn means continued chip demand.

00:04:12: but the news doesn't change this circular nature of these deals.

00:04:15: Obviously Money changes hands between model providers chip makers and data centers.

00:04:20: But what matters more for longer term appetite is how much fresh money flows into that circle from paying customers, On that front, Anthropica reported to deliver its strong third quarter revenue growth last week when AI was away with sales rising around forty-five percent from the previous quarter which is a very strong performance and it also better than expected.

00:04:44: The company reportedly reached profitability on an adjusted basis and that's not it.

00:04:50: Meanwhile reports suggested China now considering restrictions of AI model exports at home rather then sharing with the rest of the world.

00:05:01: And that's an additional piece of news, that is actually good for Western players like Anthropic and OpenAI as these cheaper Chinese models including those freely available ones to open source once have become a serious threat to the pricing power and also the profitability off proprietary models like Anthropic and Open AI.

00:05:23: so this space what?

00:05:24: This going well but doesn't necessarily justify all these investments in AI infrastructure.

00:05:31: So judging by Asian technology appetite this morning, the positive vibes are not yet back to market.

00:05:37: Ellis which is a South Korean AI cloud and data center company made terrible market debut today in south Korea with its shares sinking more than thirty five percent at that time.

00:05:48: I'm talking here And that's despite quite good fundamentals for the company.

00:05:53: Their first half-revenue tripled to around ¥, they're operating profit reached ₩, versing a loss a year earlier.

00:06:01: their net income is robust but timing bad.

00:06:05: The latest chip sell off in Korea has bruised investors' appetite.

00:06:09: Investors simply became aware of what goes up could come back and more broadly, this pool debut could be a warning for upcoming AI listings.

00:06:18: And that would be bad news!

00:06:20: Maybe Anthropik will make it.

00:06:21: but nscale which is another NVIDIA backed cloud provider is already facing resistance to its valuation ambitions.

00:06:29: the company has reportedly seeking valuation around thirty billion US dollars while some investors like it better between sixteen to nineteen billion us dollars.

00:06:40: That's again So broadly, Korean Cosby Index is down by more than full percent at the time.

00:06:45: I'm talking here this morning while the Taiwanese Thai X-Lips below has fifty days moving average.

00:06:51: today We saw some buying below this level.

00:06:54: but investors are waiting for meaty news or a sharper pullback in technology valuations to return wholeheartedly to market.

00:07:02: The good news that AI headlines could change from one minute to another.

00:07:06: One great development and rally's back.

00:07:08: so i wouldn't simply walk away.

00:07:10: The space where upside potential continues to counterweight the down side risk due high valuations in this space, but a more selective play in favor of companies that have strong fundamentals.

00:07:24: Strong revenue growth for example, strong free cash flow or lower leverage and diversified business model could reduce these downside risks.

00:07:40: may not necessarily gain momentum when technology is better because the yields climb and that's Companies that are outside technology.

00:07:49: U.S.

00:07:49: credit is back above the hundred dollar per barrel level this morning, mind you as brand credit is trading about a one-hundred and ten dollars per barrel mark.

00:07:57: as Middle East tensions escalate A Russian DSL deal will hardly offer any substantial relief to global energy prices And probably not before US midterms As promises of extra russian dsl don't outweigh fears of losing more middle eastern oil Especially when Russia's damaged refiners themselves would be struggling to deliver those promises.

00:08:19: So there is no easy fix to energy bill or energy crisis today other than the end of hostilities, and this not where we are heading toward at least right now.

00:08:29: moving forward attention will be shifting to earnings.

00:08:32: happily strong results especially from heavyweight technology companies could somehow help investors look past ugly karmic political and geopolitical news for a while as they did last earnings season.

00:08:46: Expectations remain strong, S&P's five hundred third quarter earnings are in track to grow around twenty nine percent from year ago which is strong but not unbeatable!

00:08:57: While analysts expect roughly twenty one per cent earnings growth for the european stock.

00:09:02: six hundred companies and yes those are strong numbers But They're Not Too Strong And Not Unbeatable Which Makes Them Quite Great.

00:09:09: Walking Into The Earning Season Technology and energy boost the US headline numbers, while higher-energy prices lift European producers' profits whilst squeezing other businesses & their customers.

00:09:21: In this context earlier estimates from Zax put U.S.

00:09:25: earnings growth excluding technology in energy at around seven point four percent only, while European earnings growth including energy would be closer to just ten per cent.

00:09:36: Still investors have been quite satisfied with strong headlined figures regardless of sector contribution loss quarter, so this quarter.

00:09:45: the question remains pretty much the same.

00:09:47: Whether fresh earnings announcements will be strong enough to keep bad news in the background and keep market rally going?

00:09:56: Answer!

00:09:57: in a few weeks.

00:09:58: So this is all for today, I'm Ipek Oskar Deshkaya and thank you for joining me And Thank You For All Your Beautiful And Supportive Comments!

00:10:11: to our YouTube channel for daily market commands.

00:10:29: and please, don't forget to hit the like button on these videos so let us know that you enjoy them.

00:10:36: So I will meet again tomorrow.