By Jamie McGeever
ORLANDO, Florida, Oct 19 (Reuters) - Wall Street recovered some ground on Monday as investors bought back beaten-down tech stocks and looked forward to key earnings reports, while easing worries over AI also cooled last week's safe-haven demand for bonds and pushed yields higher. Unrest and riots in France, meanwhile, weighed heavily on French bond prices and pushed the euro lower.
In my column today, I look at AI's pivotal role in exacerbating global imbalances and driving global capital
flows. The two are increasingly connected. If investor sentiment towards AI sours — and there are signs this may be happening — then the unwind could get messy.
Today's Key Reads
• France imposes curfews in parts of Paris, other cities after weekend of riots
• China's economic growth picks up as exports boom, consumers balk
• China's central bank studies making overnight rate its main policy rate
• Global food inflation is expected to intensify as supply shocks pile up
• Ex-OpenAI employee accused of planting device appears to have Saudi backing, US prosecutors say
• Today's Key Market Moves STOCKS: Asia mostly higher, Indonesia -3.5%. Europe, UK slide around 1%. France -1%, although Italy and Spain fall more. Nasdaq +1.1%, S&P 500 +0.4%, Dow flat.SECTORS/SHARES: Four sectors on the S&P 500 rise, seven fall. Tech +1.2%, consumer cyclicals +2.7%. Utilities -2%. Western Digital +6%, Amazon +5%. JPMorgan Chase -2%.FX: Dollar rises vs most G10 except Aussie, Canadian dollars. China's yuan hits four-year high vs dollar.BONDS: French yields, spreads leap. US yields up around 3-4 bps across the curve.COMMODITIES/METALS: Oil mixed — Brent -0.5%, WTI +2%.
Today's Talking Points:
Political risk sizzles
France, Brazil, the US — just a few of the countries where polarized politics and looming elections are becoming increasingly important risk factors for investors to consider. France isn't the only country in Europe — or the world — facing unenviable fiscal challenges, but the riots spreading across the country are unlikely to make meeting them any easier. Brazilians go to the polls on Sunday in a closely contested runoff presidential election vote, and the US midterm elections barely two weeks away could see President Donald Trump's Republican Party lose control of both houses of Congress.
Affordability, inflation, high energy prices, and worries over job security amid the AI revolution are issues dominating the national conversation in every country. Policymakers gathered in Bangkok for the IMF/World Bank meetings last week shared calls for fiscal discipline, AI vigilance, and tackling global trade imbalances. But that's easier said than done when domestic politics are so fractured everywhere, and the spirit of multilateralism is its lowest in decades.
FXing a hole
China's economy grew by 4.5% in the third quarter, official figures on Monday showed. The good news — that was faster than economists had expected; the not so good news — it was driven by roaring exports, which are putting the country on course to top last year's record $1.2 trillion trade surplus. China's bulging surplus is a key contributor to the expanding global imbalances that the IMF and others are warning about.
Perhaps the rising yuan will help wean the economy off exports and support domestic demand. The yuan has been appreciating steadily for the last 18 months, and is now at a 4-year high against the dollar. But the yuan's broader 'real effective exchange rate,' or REER, is still on the weak side. Yes, its REER value has risen 7% since May last year, but it's also around 15% weaker than it was four years ago and right now is right on its average of the past 20 years.
AI boomerang
After last week's selloff, the global AI trade got off to a stronger start this week. At least, with tech earnings about to begin rolling out, sentiment in the US improved — the 'SOX' semiconductor index on Monday snapped an eight-day losing streak, its worst run since October 2008. The 2.5% rise on Monday is a good start, but there's more to go if last week's 11.5% slump is to be clawed back. Similarly, South Korea's KOSPI's 4% rebound in the last two trading sessions will be welcomed, but the index is still down around 20% from where it was two weeks ago.
Like politics mentioned above, AI sentiment is becoming increasingly polarized. Few people doubt the technology's transformative significance, but bulls and bears are digging in for the long haul. All eyes are now on US earnings, and whether the incoming numbers and company outlooks justify the (still) lofty stock prices.
What could move markets tomorrow?
• Euro zone current account (August)
• German ZEW index (October)
• German producer price inflation (September)
• UK employment (August)
• US earnings including GE Aerospace, Netflix, RTX.
Want to receive Trading Day in your inbox every weekday morning? Sign up for my newsletter here. Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.
(Reporting by Jamie McGeever;)
