Is this it? Is the tech rally over?

00:00:00: Hi everyone and welcome to Swisscote's daily market talk.

00:00:04: It is Friday, the twenty-third of October and things are not looking great for global financial markets.

00:00:10: Investors are jumping ship on AI as strong earnings fail to calm concerns about soaring spending there, growing debt and mounting energy constraints.

00:00:19: High oil prices on other hand add pressure and widening French sovereigns' spreads complicate European output.

00:00:26: Gold has so far failed from falling yields overall as risk appetite weakens for AI, a major pillar of global equity rally.

00:00:36: The question is shifting from how fast AI can grow to?

00:00:39: How much that growth will cost and Will That Be Possible And Who Will Ultimately Pay the Price.

00:00:45: So we'll talk about all that and where investors are moving their capital today but before we do please keep in mind that opinions.

00:01:02: This show is brought to you by SwissQuote.

00:01:05: It was not enough.

00:01:06: Strong technology earnings this week, especially Meta's report showing investors as AI investments are finally paying off and that third quarter is cash burned much lower than penciled in by analysts couldn't ease fears about the high-speed spending there.

00:01:22: Metashare says we're initially higher in post hours.

00:01:25: trading posterior to results took a major U turn day ended up falling seven percent yesterdays trading session.

00:01:34: Meta's credit risk on the other hand, so a straight record high level with its eight hundred twenty five billion US dollar commitment to future leases and contracts for his AI services.

00:01:43: that failed to please investors along with other big player CDS levels.

00:01:48: So five year CDs for Oracle, SpaceX, Amazon and Nvidia they were all spiking to fresh old time high levels yesterday showing mounting stress here.

00:01:59: So, similar sell-off following strong earnings story unfolded when Western digital beat earnings expectations yesterday and delivered strong guidance.

00:02:08: The shares reversed an initial rally to fall around six percent in the after hours trading as rising costs and higher capital spending on nerve investors.

00:02:18: So, COSB index is under pressure.

00:02:20: this morning extended losses to a fresh low since the summer although we saw a small rebound there.

00:02:25: but given that more than fifty percent retreat in prices since summer We could now argue that exponential rise that we saw in membership makers.

00:02:34: stock prices over the past year was a bubble indeed And the latter has simply.

00:02:39: Now, these companies will continue to face strong AI-related demand.

00:02:43: There is no doubt about that and they are trading at very cheap valuations right now.

00:02:48: Samsung can escape high nexus.

00:02:50: Forward P-Ratio's are around three or four times.

00:02:54: Yes!

00:02:55: Three to four times only.

00:02:57: That is indeed very cheap.

00:02:59: Alas buyers are nowhere to be found.

00:03:02: It's not only there, because brother AI investors are also jumping ship on AI these days.

00:03:07: A report from Goldman Sachs that made headlines on Bloomberg yesterday actually suggested the hedge funds have been the most bearish they've had over past five years.

00:03:19: Their clients reported shorting stocks at around FIVE TIMES that they're buying them.

00:03:25: So all in all with retail brews of past year's busiest chip trade just went bust and hedge funds pulling back their support, the market is losing ground.

00:03:36: NASDAQ hundred dropped two point ninety percent on Thursday, then a case.

00:03:40: testing is two-hundred day moving average to downside this morning and money is flowing into US treasuries as investors are moving toward safer corners of the markets.

00:03:51: we could argue how safe it is but looks safer than the rest off the market today apparently so the U.S ten year yield tumble seventeen basis points yesterday.

00:04:01: five percent psychological mark as a thirty year yield is below the five point thirty per cent level.

00:04:07: The two-year yield also came down despite rising oil prices, suggesting that troubles we see in AI today could eventually squeeze growth expectations and that would soften the Federal Reserve's hand when it comes to interest rate highs.

00:04:21: Interestingly here gold didn't blink at all when yields came down yesterday!

00:04:26: The price of an ounce slumped more than country so that's a similar amount to the slump we saw in Nasdaq hundred index.

00:04:35: as they resell off, nor do falling yields bring investors back.

00:04:40: So this unusual behavior among gold investors suggests that Gold has not yet regained safe haven status.

00:04:49: following the exponential rise that preceded its decline.

00:04:52: from near fifty five-hundred dollars per ounce reached Today, the price is just above long-term bullish trend ranges stop.

00:05:02: The range being around US dollars and fifty four thousand per ounce levels.

00:05:08: If technology road deepens and yields ease further gold could find support to the January to date.

00:05:14: sell off Now.

00:05:15: that lower gold prices encourage the price in sensitive buyers like central banks and governments To accumulate Gold at lower prices And leather makes gold a stronger asset In longer run.

00:05:27: Now coming back to the yields and spread story.

00:05:30: Here in Europe, this spread between the French and German ten-year bond yield spiked to one hundred seventy five basis points level yesterday.

00:05:39: we are now above peak levels of European sovereign debt crisis of two thousand eleven and twenty twelve.

00:05:46: The yield spreads between Germany and other euro area bond yields also rising though here Levels right now, meaning that the French turmoil has not yet turned into a full-blown European debt crisis.

00:06:03: That's good news but spreads should be watched closely.

00:06:06: as street unrest is equating across other European nations and could translate to further stress in financial markets.

00:06:14: this weekend will be important.

00:06:17: Rising yields also field by rising energy prices, where?

00:06:20: on European equities.

00:06:21: but there is more to that story.

00:06:23: The European luxury sector continues to suffer from the Middle East war and China's weakened appetite for luxury.

00:06:30: Gucci, for example sold less stuff than expected in the third quarter of this year where LMS also missed estimates yesterday.

00:06:38: On the flip side of the world, the Hansang is about to step into the bear market as well.

00:06:42: Bear market meaning a twenty percent fall from their recent peak level.

00:06:47: In China consumer spending remains weak property crisis is taking its toll, technology exports have so far been the broad spot but concern about trade restrictions and profitability way on appetite.

00:06:59: Out of that latest rise in government risk, Alibaba is now under pressure regarding quality of products it sells while you've got a pretty bleak picture challenging massive growth potential for China's tech space especially!

00:07:14: Well, overall yesterday I was seeing that technology is still a higher potential sector with the possibility of its sudden U-turn sitting still at the table.

00:07:22: US Treasury's offering very interesting returns right now and... some safety let's say, and that defensive and value names could become an interesting diversification for portfolios moving forward.

00:07:34: So indeed PNG soared more than five-and a half percent yesterday.

00:07:37: while others were suffering.

00:07:39: after beating sales and profit expectations their selective approach to raise prices is set to be paying off!

00:07:45: That strategy is raising the price of necessity products essential product that consumers can't not consume versus keeping the prices of discretionary range contains so that people would simply continue spending.

00:07:58: That the price sensitive products continued to leave the shelves than any just announced an extraordinary dividend thanks another strong quarter led by higher energy prices and fact they have ample cash in their hands right now.

00:08:11: So moving forward, The technology earnings will accelerate next week with Microsoft Google Amazon and Sanders duty announced their latest earnings reports next week.

00:08:23: Given the robust AI demand, the results will almost certainly be strong whilst less certain however is whether investors continue to buy into that strength Because the rising theme of the moment is no longer the impressive AI growth, but how much that impressive growth is costing companies and economies when free cash is already spent.

00:08:45: Debt is growing as borrowing costs climb and capacity constraints emerge.

00:08:49: And it's not only the capacity constraints regarding chip & equipment production mind you.

00:08:54: It also lack energy natural resources and people envy to back such an impressive growth at large.

00:09:03: Look, Bloomberg reports that Australia's seventy billion US dollar data center boom has hit a speed bump recently and more than forty large undertakers could confirm.

00:09:15: grid connections.

00:09:17: For the rest, there is simply not enough energy or not enough political envy to move forward!

00:09:22: Therefore next big wave of AI trade could become energy and natural resources Or maybe the political speed bumps.

00:09:29: So this space that has so far been left behind the budget chip and equipment trace But which it on its way becoming a bottleneck in the AI buildout until SpaceX finds a way To get data centers into orbit.

00:09:42: This is all for this week.

00:09:44: I'm Yipega Skardishkaya and thank you for joining me, And Thank You For All Your Beautiful and Supportive Commands!

00:09:50: I hope that episode of Market Talk has been helpful to you as well so please do not hesitate to leave your comments, reactions or questions below.

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00:10:22: So I will meet again next week!

00:10:24: Until then, good day trading.

00:10:26: have a lovely weekend!

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