Tech disappetite

Last week ended on a mixed note for equities. Looking at global index performance, the message was fairly clear: investor appetite is waning for AI-related technology stocks, while non-tech and more value-oriented pockets of the market are benefiting from the latest Federal Reserve (Fed) rate cut.

In the US, the Dow Jones briefly hit a fresh all-time high on Friday before retreating, while the tech-heavy Nasdaq fell 1.9%, sliding into its 50-day moving average. Earnings from Oracle and Broadcom were not strong enough to reignite enthusiasm, with investors instead focusing on high leverage, elevated debt levels and cloudy revenue visibility.

To rub salt in the wound, Oracle said it is pushing back the completion dates of some data centres developed for Nvidia from 2027 to 2028, citing labour and material shortages. That announcement proved to be the final blow: Oracle shares fell another 4.5% on Friday, after plunging more than 10% the day before following its Q3 results. Stress is also visible across related assets: Oracle’s new investment-grade bonds are trading at distressed levels, while its five-year CDS spiked to the highest level since 2009.

When the market’s AI risk barometer struggles, the sector’s kingpin is unlikely to remain unscathed. Nvidia shares fell more than 3%, despite reports that Chinese demand for its H200 chips exceeds current production capacity. Nvidia is now allowed to sell these chips to China provided a 25% cut of revenues is paid to the US government. The issue, however, is that there is no guarantee Beijing will allow Chinese firms to purchase them freely, given its determination to build domestic chip capacity. China, therefore, may not provide the safety net investors are hoping for.

More broadly, while Nvidia’s revenues continue to grow thanks to massive investment in AI infrastructure, investors increasingly want to see monetisation through AI-enabled end products, not just spending. That matters because investors ultimately finance this capex cycle through equity and bond markets. If their support fades, spending will need to be trimmed — and Nvidia would inevitably feel the impact.

Against this backdrop, Bitcoin — often seen as a bellwether of tech and risk appetite — remained under pressure over the weekend. While slightly firmer this morning, it is still trading below $90’000. Asian tech stocks also opened the week on the back foot, with SoftBank down more than 6%. If the global tech sell-off deepens, Bitcoin could retest — and potentially break — the key $80’000 support level.

Looking ahead, Micron’s earnings this week could add to the gloom for the tech sector. A deeper tech correction would likely accelerate rotation into non-tech and non-US assets. In the US, the Dow Jones could continue to attract flows, while in Europe the Stoxx 600 and FTSE 100 may benefit from their value tilt. For the UK market, a potential Bank of England (BoE) rate cut on Thursday could provide additional support. The BoE is expected to lower rates by 25bp, as it continues to support a weakening economy. Recent UK growth data were particularly poor, and upcoming budget measures are unlikely to improve the outlook in the near term.

China is also struggling. Recent growth, retail sales and industrial production data disappointed sharply, underscoring how reliant Chinese markets have become on tech optimism. The silver lining is that Beijing is likely to respond with further stimulus, which typically resonates well with investors.

Elsewhere, both the European Central Bank (ECB) and the Bank of Japan (BoJ) will deliver their final policy decisions of the year. The ECB is expected to stay on hold, arguing that policy is close to equilibrium while remaining data-dependent. In contrast, the BoJ is widely expected to hike rates. That move appears largely priced in, with Japanese yields rising sharply: the 10-year has pushed above 1.95%, while the 30-year is flirting with 3.40%, narrowing the gap with US yields. This raises the risk of Japanese investors repatriating capital from US Treasuries.

But, Keep Calm! The Federal Reserve has begun buying roughly $40bn per month of short-term Treasury bills to support bank reserves and stabilise short-term funding markets after years of quantitative tightening weighed on liquidity. Officials stress this is not QE, but a “reserve management” operation aimed at ensuring sufficient reserves to keep policy rates under control.

Better news: According to the New York Fed’s operational schedule, total transactions could exceed $54bn over the next month, including reserve-management purchases and reinvestments. And frankly, regardless of the label, $40bn of central-bank Treasury buying is still $40bn of liquidity entering the system — liquidity that tends to find its way into stocks, bonds and metals.

The final test this week will be US CPI and non-farm payrolls. Investors want soft labour data to justify further rate cuts — but not numbers too weak to signal a sharp earnings slowdown. And everyone wants inflation to continue easing toward the Fed’s 2% target. Lower inflation remains the key ingredient for sustaining risk appetite.