As a result, US crude slipped below its 200-DMA (near $74.80) and continues to extend losses below this level this morning.

The latter pulled European yields lower on expectations that a sustainable decline in oil prices should tame inflationary pressures and reduce the need for further European Central Bank (ECB) tightening. ECB President Christine Lagarde also said that euro area inflation is expected to return toward the 2% target over the medium term, helping to temper fears that the ECB could enter a fresh tightening cycle that would hurt growth. The ECB is expected to hike once more this year, but that is already largely priced in.

As such, the EURUSD fell to its lowest level in more than three months on the back of the divergence between a more hawkish Federal Reserve (Fed) — with new Chair Kevin Warsh determined to bring US inflation back to the 2% target — and softening ECB expectations thanks to falling oil prices.

European equities were better bid, and the Stoxx 600 looks set to extend gains toward fresh all-time highs, something that could be possible as appetite for technology stocks wobbles.

The week started on a strong footing for Asian technology indices, but the Nasdaq 100 failed to hold on to the optimism. The index was pulled lower by Big Tech stocks after news that SpaceX (which is not yet part of the index) was looking to borrow up to $20 billion through a bond sale – investment-grade bond (uh-hum) – quite unusual for a company that is burning cash. Seemingly, the recent IPO did not suffice to assuage the company's funding needs — a reminder of how much money may still be burned on the way to Mars. SpaceX shares fell more than 16% yesterday, reducing the post-IPO rally to less than 15% — still substantial given that the company's valuation remains massive by traditional metrics.

Again, SpaceX is not yet part of the Nasdaq indices, but the fact that it is jumping on the bond train to fund excessive AI and infrastructure spending revives earlier concerns that Big Tech may be spending too much on AI infrastructure and increasingly financing that spending through debt. Morgan Stanley expects global AI-related borrowing to surpass half a trillion dollars this year, meaning that corporate bond indices are increasingly becoming dominated by the AI theme as well.

And that's a problem for risk management. If major stock and bond indices are driven by the same factors, they can no longer effectively balance each other. If anything goes wrong on the AI front — whether due to disappointing revenues, excess capacity, or slowing adoption — a seemingly well-diversified portfolio could start taking water from both ends.

That's why regional and thematic diversification could perform better when technology worries rise at a time when valuations are sky high. I was saying a few weeks ago that European stocks would become interesting once the Middle East dust settled and oil prices fell sustainably. It seems we may now be there. Indeed, the Stoxx 600 stopped underperforming the S&P 500 this month, alongside falling oil prices.

The hawkish shift in Fed policy and rising US yields could further support a rotation from tech-heavy US markets into Europe's more diversified indices. I would, however, watch the appreciation of the US dollar, which could offset part of the benefits from declining energy prices. For now, the path appears clear for further catch-up from European stocks and a deeper downside correction in technology peers.

Kospi is down by more than 7% at the time of writing.

10th anniversary of the Brexit referendum

Gilt yields fell yesterday after the resignation of Keir Starmer, who handed over to Andy Burnham. Burnham will take the reins of the country in September and is now putting together his new cabinet — one that should please gilt investors, as it is expected to include figures who favour fiscal discipline in a country running on rising debt and facing a declining appetite from investors to lend money to an economy marked by Brexit, a pandemic, two energy crises and some spectacular fiscal policy mistakes, the most memorable being Liz Truss's mini-budget crisis, which forced the Bank of England to step in to prevent a meltdown in the UK's pension system.

Today marks the tenth anniversary of the Brexit referendum. UK borrowing costs have surged over the past decade. The 10-year gilt yield stood near 1% on 23 June 2016. Yesterday, it closed near 4.80%. The UK government now spends roughly 8–9% of its revenues on interest payments, growth is weak, productivity is declining, and despite Brexit, immigration has remained elevated. At the same time, the composition of migration has changed, with fewer high-earning European workers and a larger share of lower-income migrants, raising concerns about tax revenues and the long-term sustainability of public finances, on top of weak productivity growth.

To make matters worse, the UK government seems determined to ensure that the last profitable businesses leave the country after being subjected to ever-higher tax burdens. I am looking at the North Sea oil and gas sector, where repeated windfall taxes have raised serious questions about the UK's attractiveness as a place to invest and do business.

Ten years after the referendum, Brexit remains a powerful reminder that political slogans are easy, but rebuilding growth, productivity and public finances is much harder.

Again, gilts gained yesterday after the resignation of Keir Starmer, which shortened the period of leadership uncertainty. However, the composition of the new cabinet will keep gilt traders busy in the coming months. The government's room for manoeuvre is extremely narrow and bondholders' patience increasingly thin. Whoever takes office must ensure that prosperity comes from stronger productivity and growth rather than more spending financed by unsustainable debt.

Good luck, Andy.