What a time to be alive

Just a day after a weak but better-than-expected ADP report weakened the Federal Reserve (Fed) doves’ hand, a disquieting report from Challenger came to the rescue of bond holders — showing that US companies announced the biggest job cuts in October since 2003, thanks to the AI revolution. The news isn’t great, fundamentally speaking — human jobs are being replaced by machines, just as they were back in 2003 when the internet wave hit. But the strong job-cuts figure revived hopes of a December Fed rate cut.

The 2-year Treasury yield, which best captures Fed expectations, tanked, and the dollar headed for its biggest drop in three weeks. The probability of a December rate cut recovered to 67%. Yet falling yields and a stronger case for the next Fed cut did little to revive risk appetite. Sellers returned after Wednesday’s brief pause, pushing the S&P 500 down more than 1% and the Nasdaq 100 almost 2% lower.

And beyond yields and macro narratives, Big Tech deserved to fall yesterday on two incredible pieces of news.

First, Elon Musk had his trillion-dollar compensation package approved by 75% of Tesla shareholders. The vote comes after Musk’s strong support for Trump and several global far-right figures, a stance that quickly cost him the White House’s goodwill following the US election — and tarnished Tesla’s reputation, especially among its customer base. Tesla’s car deliveries have plunged this year, and last quarter’s brief sales jump was mostly due to a rush of demand before EV tax credits expired — credits Trump refused to extend amid their falling-out.

The good news? Musk’s record-breaking pay package only materializes if Tesla’s valuation hits $8.5 trillion — a fantastical figure for a company already trading at a P/E above 300, mostly on dreams rather than fundamentals, and facing mounting competitive and leadership pressure. In other words, Tesla would need either divine intervention — or the US dollar to turn into confetti — to make that valuation and that pay package come true.

Then came the second bizarre headline: OpenAI. The company reportedly asked the US government for guarantees on its massive infrastructure spending — an investment of more than $1 trillion. OpenAI is an incredible company, no doubt, but asking for government backing at a time when markets already fear the circularity of AI money flows, the formation of an AI bubble and uncertainty around returns — well, that didn’t sit well with investors.

So yes, this week can’t end soon enough. Nasdaq futures are somehow in the green this morning, but Asian tech indices are closing the week deep in the red. The Kospi is set for its worst week since November, the Nikkei is testing the 50,000 support as SoftBank, closely tied to AI names, dropped another 7% today. And the Hang Seng is also down over 1% — though at least it offers some diversification for tech investors: it’s not caught in the OpenAI loop.

And that’s without mentioning that the US government just broke another record — the longest shutdown in American history, as politicians fail to agree on critical issues like extending medical care programs. Imagine if they actually ended up backing OpenAI’s trillion-dollar ambitions!!

So, between the government shutdown, bizarre corporate news, stretched valuations and an underlying economy showing cracks beneath the glossy growth data, investors are understandably hesitant to take on risk. Gold wavered this week but seems to be building a floor near $4’000 per ounce. But even gold is acting oddly amid the growing absurdity of the news flow.

Oil, meanwhile, slid below $60 per barrel as US crude inventories rose by more than 5 million barrels last week — a clear signal of slowing activity. Let’s see whether the dollar’s recent weakness will help revive appetite for black gold.

Speaking of the dollar — it’s losing steam, also helped by news - or lack thereof - from abroad. Japan’s finance minister pushed back against yen shorts this week, and France, for once, didn’t announce a new shutdown. The EURUSD bounced to 1.1552, and Cable climbed past 1.31 after the Bank of England (BoE) refrained from cutting rates yesterday — though just barely. The vote was split 5-4, tilting more dovish than expected, and markets now price a 55% chance of a December cut.

Still, as tax rises loom, BoE expectations will likely soften further, assuming inflation allows. Sterling’s post-BoE rebound is surprising — but probably more about the Fed’s dovish turn than confidence in the UK outlook. Yet, sterling rallies remain interesting sell opportunities into the Autumn Budget, both against the greenback and the euro. Cable remains stuck in its June-to-remember bearish trend below 1.33, while EURGBP seems destined to test the 0.90 mark.