A look at the day ahead in European and global markets from Wayne Cole.
It’s not every day you wake up to see the US long bond up 2 full points in price, but that’s what happened overnight. Ten-year yields dived 19 basis points in the biggest daily move since early 2023, when Silicon Valley Bank collapsed.
Fed funds futures rallied as much as 22 ticks, essentially taking an entire hike off the table for next year, while a December move is no longer fully priced in. Old-fashioned safe harbours were in demand as the yen and Swiss franc climbed, leaving the dollar looking a little less exceptional.
The proximate cause this time was the sound of air escaping from the AI bubble as investors grappled with the sheer scale of funding needed for all this compute power. Some estimates put it at 1.6 times the cost of laying America’s railways.
Seems Meta’s mention of needing “hundreds of billions of dollars” for capex spooked the horses, with its shares sliding almost 7%. And not everyone was happy about the dilution from having to establish a whole new class of stock with no voting rights to raise the money.
CoreWeave, the data center group that started m.uch of this scare, shed another 10% of its value to hit lows last seen in May 2025, while credit spreads blew out across the entire sector. Treasuries benefited from the resulting scramble for safety, though that “safety” is relative these days.
There is also the risk the investment boom in data centres will sputter, stalling a major driver of economic growth. Voter opposition to the energy-hungry sites has also been a notable feature of the midterm campaigns, adding politics to the mix.
The surge in Treasuries might bring back memories of the Greenspan put, but it’ll be much harder for the Fed to ride to the rescue this time. Brent futures are atop $113 a barrel, and over $100 right out to March, while crude for actual delivery is far higher. Easing monetary policy during an inflationary oil shock is going to be a hard sell.
Neither is there any end in sight to the conflict in the Gulf. The press is full of reports of the White House considering fresh attacks on Iran after the midterms. The USS Theodore Roosevelt carrier group just departed Japan this week for Exercise Keen Sword 27, after which it will head for the Middle East.
Ever since the war started in February, analysts have always assumed it would be done within a month or maybe two. Next week will mark the eighth month of the war, and it’s not even clear whether Washington and Tehran are talking to each other. That will ensure inflation is front and centre when the Fed meets next week, relegating Wall Street’s woes to a footnote.
Key developments that could influence markets on Friday:
– October global PMIs for Europe, UK and US. UK and Canada retail sales
– Appearance by ECB board member Piero Cipollone
(Editing by Shri Navaratnam)
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