Quarterly Outlook
Q4 Outlook for Investors: Diversify like it’s 2025 – don’t fall for déjà vu
Jacob Falkencrone
Global Head of Investment Strategy
Access both platforms from your single Saxo account.
London Quick Take – 14 November - Gilt yields jump on Budget income tax rumours, AI and tech selloff drags on equity market
Neil Wilson
Investor Content Strategist
Note: This is marketing material. This article is not investment advice, capital is at risk.
Maybe that is why analysts have largely ignored Oklo’s larger-than-expected loss in the third quarter. Those small modular reactors may not exist yet, but AI is aching for them.
Michael Burry of Big Short fame has garnered some headlines for taking a big bet against a couple of the big AI names and voicing some concerns around aggressive accounting practices at the hypescalers that’s flattering their earnings. Meta and Oracle were singled out for lengthening the valuable lifespan of their GPUs, reducing depreciation costs and boost earnings per share. Recently, options bets against Palantir and Nvidia were disclosed. Well, he has apparently deregistered his hedge fund, Scion Asset Management. “On to much better things Nov 25th,” Burry said in a post on X. A viral but unverified letter doing the rounds on social media, dated 27 Oct, purports to show Burry telling investors: “My estimation of value in securities is not now, and has not been for some time, in sync with the markets.” It could be about retreating from public scrutiny and moving to a family office setup managing his own money only. Let’s see what he says on 25 Nov – one day before the Budget!
Budget Watch: Gilts and sterling sold off on a report that the government won’t now break its manifesto pledge on income tax. UK 10yr gilt yield jumps +13bps to 4.57%, 2yr gilt yield +6bps to 3.82% as bonds sold off on an FT report the Chancellor will ditch the idea of raising income tax in the upcoming UK Budget. Sterling also dipped, making fresh 2yr lows against the euro. GBPUSD was still rangebound around 1.31. Markets are now trading on the political as well as the fiscal. But the Chancellor is riding a tiger - by trying to do anything and everything to please markets Reeves is now at their mercy, appeasement never works.
Why is the market selling off on not raising income tax? The problem with not raising income tax is that's its mechanically the best lever - otherwise, faced with such a large black hole, you have to scratch around with a load of smaller things, pulling all kinds of levers that mess with all sorts of things and probably squeeze growth even more, and you just need to come back for more. Moreover, the market thinks you lack credibility in terms of filling the black hole and raising headroom. This is the doom loop scenario - bond yields rise and borrowing costs are higher and you need to squeeze the pips some more. This neatly shows how the Chancellor is between Scylla and Charybdis - please markets or please the people. Please the markets and the party and people revolt, please the party and markets go vigilante.
Tariff Watch: Listened to some interesting commentary on the Supreme Court hearing on IEEPA tariffs case...likely could be struck down but Trump has other avenues to do tariffs so it shouldn’t ultimately matter...what will matter is disruption in event of repayments and delays and ongoing uncertainty about individual country/sector tariffs.
Dollar came off as US government shutdown ended...liquidity +ve and debt higher, Fed looser, and some premium baked into USD during shutdown (shortage of dollars) coming off and getting back to where we were before. Sterling though v weak and couldn’t get any uplift so GBPUSD still very rangebound around the 1.31 mark.
For more Budget coverage check our latest podcast episode with BlondeMoney's Helen Thomas
Key Points
- AI and tech names lead Wall Street selloff, weighing on equity indices
- Worries about power demands rise to surface amid AI valuation concerns
- Bitcoin tumbles below $100k to enter bear market
- Gilt yields spike on report that Chancellor will not raise income tax in Budget
- Sterling slides to new 2-year low versus the euro stable versus dollar still
Zeitgeist: You can print money, but you cannot print electricity.
Tech and specifically AI stocks led a selloff on Wall Street yesterday that’s hit sentiment more broadly and pushed European benchmarks down on Friday. The FTSE 100 fell 1% in early trade, while the DAX and CAC were each down around 0.5%. Chipmakers and hyperscalers were hit hard as the S&P 500 fell 1.6%, through its 20-day SMA though held the trendline support just at 6,737, and the Nasdaq tumbled 2.3%. The Dow Jones, which had hit a record close above 48, fell 1.65%. With tech and risk under the cosh Bitcoin proved a good high beta proxy, tumbling below $98,000 to re-enter bear market territory.
Tech and specifically AI stocks led a selloff on Wall Street yesterday that’s hit sentiment more broadly and pushed European benchmarks down on Friday. The FTSE 100 fell 1% in early trade, while the DAX and CAC were each down around 0.5%. Chipmakers and hyperscalers were hit hard as the S&P 500 fell 1.6%, through its 20-day SMA though held the trendline support just at 6,737, and the Nasdaq tumbled 2.3%. The Dow Jones, which had hit a record close above 48, fell 1.65%. With tech and risk under the cosh Bitcoin proved a good high beta proxy, tumbling below $98,000 to re-enter bear market territory.
AI Bubble: OpenAI released GPT 5.1, an update that aims to make ChatGPT “more conversational.” Alibaba shares jumped as it prepared a revamp of its flagship AI app to rival ChatGPT. Oracle was down over 4% and has now shed a third of its value since its September highs. Palantir shed another 6% and Nvidia was down 3.5%. CoreWeave fell another 8% and is -24% for the last 5 trading days. The bubble is being pricked...
Zeitgeist: Has anyone done the maths on how many new nuclear power stations we’ll need by 2028 to power all these circular AI deals? It won’t be the money that does for the AI bubble, it’ll be the electricity. You can print money but you can’t print electricity.
But you can print money and JPMorgan’s monster report on the data centre and AI build-out is doing the rounds. It’s estimated this “extraordinary and sustained” capital markets event will require $5tn and suck in funding from every possible source imaginable. But assuming you can get the funding (and we assume they will because hyperscalers are throwing off $700bn in cash each year and because government, chiefly the US, will have to backstop/put up the readies because this is all about national security and nation states winning the AI arms race. There is no scope not to as national defence concerns will skyrocket as AI expands.
So, the big barrier is power. Here’s JPM talking about physical constraints to the AI build -out:
“Power is the most important of those constraints. Current lead times for new natural gas turbines have ballooned to 3-4 years, and nuclear plants have historically taken 10+ years to build. Adding 150 GW of power in a timely manner is a remarkable challenge, particularly in light of grid upgrade requirements. Recent comments from certain power producers suggest some flexibility is possible from ramping up peakers more aggressively, but that has implications for retail prices. Balancing ultimate retail electricity prices (still stable as a percentage of income, at least in the US) is a politically important and sensitive aspect of managing the data center boom.”
Zeitgeist: Has anyone done the maths on how many new nuclear power stations we’ll need by 2028 to power all these circular AI deals? It won’t be the money that does for the AI bubble, it’ll be the electricity. You can print money but you can’t print electricity.
But you can print money and JPMorgan’s monster report on the data centre and AI build-out is doing the rounds. It’s estimated this “extraordinary and sustained” capital markets event will require $5tn and suck in funding from every possible source imaginable. But assuming you can get the funding (and we assume they will because hyperscalers are throwing off $700bn in cash each year and because government, chiefly the US, will have to backstop/put up the readies because this is all about national security and nation states winning the AI arms race. There is no scope not to as national defence concerns will skyrocket as AI expands.
So, the big barrier is power. Here’s JPM talking about physical constraints to the AI build -out:
“Power is the most important of those constraints. Current lead times for new natural gas turbines have ballooned to 3-4 years, and nuclear plants have historically taken 10+ years to build. Adding 150 GW of power in a timely manner is a remarkable challenge, particularly in light of grid upgrade requirements. Recent comments from certain power producers suggest some flexibility is possible from ramping up peakers more aggressively, but that has implications for retail prices. Balancing ultimate retail electricity prices (still stable as a percentage of income, at least in the US) is a politically important and sensitive aspect of managing the data center boom.”
Maybe that is why analysts have largely ignored Oklo’s larger-than-expected loss in the third quarter. Those small modular reactors may not exist yet, but AI is aching for them.
Michael Burry of Big Short fame has garnered some headlines for taking a big bet against a couple of the big AI names and voicing some concerns around aggressive accounting practices at the hypescalers that’s flattering their earnings. Meta and Oracle were singled out for lengthening the valuable lifespan of their GPUs, reducing depreciation costs and boost earnings per share. Recently, options bets against Palantir and Nvidia were disclosed. Well, he has apparently deregistered his hedge fund, Scion Asset Management. “On to much better things Nov 25th,” Burry said in a post on X. A viral but unverified letter doing the rounds on social media, dated 27 Oct, purports to show Burry telling investors: “My estimation of value in securities is not now, and has not been for some time, in sync with the markets.” It could be about retreating from public scrutiny and moving to a family office setup managing his own money only. Let’s see what he says on 25 Nov – one day before the Budget!
Budget Watch: Gilts and sterling sold off on a report that the government won’t now break its manifesto pledge on income tax. UK 10yr gilt yield jumps +13bps to 4.57%, 2yr gilt yield +6bps to 3.82% as bonds sold off on an FT report the Chancellor will ditch the idea of raising income tax in the upcoming UK Budget. Sterling also dipped, making fresh 2yr lows against the euro. GBPUSD was still rangebound around 1.31. Markets are now trading on the political as well as the fiscal. But the Chancellor is riding a tiger - by trying to do anything and everything to please markets Reeves is now at their mercy, appeasement never works.
Why is the market selling off on not raising income tax? The problem with not raising income tax is that's its mechanically the best lever - otherwise, faced with such a large black hole, you have to scratch around with a load of smaller things, pulling all kinds of levers that mess with all sorts of things and probably squeeze growth even more, and you just need to come back for more. Moreover, the market thinks you lack credibility in terms of filling the black hole and raising headroom. This is the doom loop scenario - bond yields rise and borrowing costs are higher and you need to squeeze the pips some more. This neatly shows how the Chancellor is between Scylla and Charybdis - please markets or please the people. Please the markets and the party and people revolt, please the party and markets go vigilante.
Tariff Watch: Listened to some interesting commentary on the Supreme Court hearing on IEEPA tariffs case...likely could be struck down but Trump has other avenues to do tariffs so it shouldn’t ultimately matter...what will matter is disruption in event of repayments and delays and ongoing uncertainty about individual country/sector tariffs.
Dollar came off as US government shutdown ended...liquidity +ve and debt higher, Fed looser, and some premium baked into USD during shutdown (shortage of dollars) coming off and getting back to where we were before. Sterling though v weak and couldn’t get any uplift so GBPUSD still very rangebound around the 1.31 mark.
For more Budget coverage check our latest podcast episode with BlondeMoney's Helen Thomas
Latest Market Insights
Quarterly Outlook
-
-
Quarterly Outlook
Q4 Outlook for Traders: The Fed is back in easing mode. Is this time different?
John J. Hardy
Global Head of Macro Strategy
The Fed launched a new easing cycle in late Q3. Will this cycle now play out like 2000 or 2007? -
Quarterly Outlook
Q3 Investor Outlook: Beyond American shores – why diversification is your strongest ally
Jacob Falkencrone
Global Head of Investment Strategy
-
Quarterly Outlook
Q3 Macro Outlook: Less chaos, and hopefully a bit more clarity
John J. Hardy
Global Head of Macro Strategy
After the chaos of Q2, the quarter ahead should get a bit more clarity on how Trump 2.0 is impacting... -
Quarterly Outlook
Equity outlook: The high cost of global fragmentation for US portfolios
Charu Chanana
Chief Investment Strategist
-
Quarterly Outlook
Commodity Outlook: Commodities rally despite global uncertainty
Ole Hansen
Head of Commodity Strategy
-
Quarterly Outlook
Upending the global order at blinding speed
John J. Hardy
Global Head of Macro Strategy
We are witnessing a once-in-a-lifetime shredding of the global order. As the new order takes shape, ... -
Quarterly Outlook
Asset allocation outlook: From Magnificent 7 to Magnificent 2,645—diversification matters, now more than ever
Jacob Falkencrone
Global Head of Investment Strategy
-
Quarterly Outlook
Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?
John J. Hardy
Global Head of Macro Strategy
-
Quarterly Outlook
Equity Outlook: The ride just got rougher
Charu Chanana
Chief Investment Strategist