Summary: Today, we note that dip-buyers won the day yesterday after a further acceleration of the sell-off, but that the entire volatile experience has further revealed the fragility of this market. We also note reactions to incoming earnings, the pressure on long bonds easing with the important major exception of Japan, the latest in currencies, some must reads if you would like to delve deeper into the Palantir phenomenon and much more. Today's pod is hosted by Saxo Global Head of Macro Strategy John J. Hardy.
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Fortune.com seems to have been the outfit that broke the story on an MIT study showing that 95% of AI projects are not driving profit improvements - a bit more nuance in the article than in the headline, but there is a lot of work ahead to show that value is being extracted from the vast scale of AI investments.
Eddy Elfenbein with a great reduction of the complexity of what is going on here - it is about relative performorance of high-beta (struggling) to low beta stocks (thriving). This kind of thing happens when popular trades in markets are getting crowded, requiring uncomfortable adjustments and could indicate a major market shift. More in this space to follow.
For those interested in immersing themselves in the ideological drivers for some of the right and the patriotic stripes and even quasi-religious drivers in Palantir’s founders and those in their orbit, have a look at this New Yorker (don’t prejudge) article The Palantir Guide to Saving America’s Soulon Palantir CEO Alexander Carp’s book, another New Yorker article Curtis Yarvin’s Plot Against America on the world view of Yarvin, an ideologue close to Palantir founder Peter Thiel and even US Vice President JD Vance. If you prefer less politically charged angle, you can have a read of the drier Wikipedia entry on the Dark Enlightenment.
Hussman’s latest depressing reminder of expected returns from here, given where the bubble in US market valuations. We all have to hope he is wrong, because if he is right…ugh, don’t want to go there today.
A pivotal day yesterday with the UK CPI release, which came in hotter than expected for the core and services numbers. And yet the market wrote this off after a brief knee-jerk rally in sterling, whether because some of the CPI components were still in volatile categories or because the BoE is not seen swaying from its intent to continue cutting. UK 2-year rates even fell a few basis points yesterday, paying more attention to a risk-off session in global equities rather than the CPI data. EURGBP rebounded smartly from an initial dip and has now reinforced the importance of the 0.8600 area support as it may look higher to the 0.8700-0.8750 area again. To punch through to new cycle highs, we might need to see a new cycle of risk off across markets - note the sterling sensitivity to the global equity market meltdown back in April. But the structural headwinds for sterling may be sufficient to take us to 0.8800+ without any “support” from a risk-off backdrop.
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Global Head of Macro Strategy