France will remain the focal point, of course, with short-term measures aimed at calming nerves on the streets, but investors may be reluctant to return to French bonds as fiscal and political risks loom. Note that even if the current government comes up with a budget, next year’s presidential election could undo whatever is decided today. This situation could keep investors nervous at least until next year’s election, with voting scheduled for 18 April and 2 May.

Now, the turmoil in European bond markets may be helping cool the selloff across the Atlantic. US budget concerns are looming as well, but those headlines have been drowned out by images of burning cars and historic buildings in France. Yet the US 10-year yield rebounded from levels close to 5% yesterday, suggesting that any safe-haven demand was insufficient to keep yields down.

But today’s Japanese 20-year bond auction attracted the strongest demand on record — huh! Attractive JGB yields seem to have whetted investors’ appetite for Japanese debt just as alternatives elsewhere look increasingly sour. If that trend encourages Japanese investors to bring more money home, it could mark the end of cheap global money and keep global bond yields higher for the long run.

The implications could be negative for global equity markets: the higher the yields, the greater the pressure on risky asset valuations. Ample liquidity from elsewhere could counterbalance that negative impact, meaning that a yen carry unwind would not necessarily trigger a sharp selloff. But I’m afraid we’re witnessing the death of near-zero rates — one of the pillars of cheap global money.

This morning, the Japanese 10-year yield eases further to 2.90%, but the Nikkei is difficult to cheer up.

Tech wobbly

US tech stocks rebounded yesterday as dip buyers returned after a heavy week of selling. News that Anthropic is in talks with Nscale — another neocloud provider — for another $45bn deal seems to have eased concerns across chipmakers: these deals mean data centre expansion, which in turn means continued chip demand.

Yet the news doesn’t change the circular nature of these deals: money changes hands between model providers, chipmakers and data centres. What matters more for longer-term appetite is how much fresh money flows into that circle from paying customers. On that front, Anthropic reportedly delivered strong Q3 revenue growth last week, with sales rising around 45% from the previous quarter. The company also reportedly reached profitability on an adjusted basis.

Meanwhile, China is considering export restrictions on certain AI technologies to keep strategically important technology at home rather than sharing it with the rest of the world. Depending on their scope, those restrictions could be good news for Western players, as cheaper Chinese models — including those with freely available weights — have become a serious threat to the pricing power and profitability of proprietary models. A space to watch.

But judging by Asian tech appetite, the positive vibes are not yet back. Elice, a South Korean AI cloud and data centre company, made a terrible market debut today, with its shares sinking more than 35% (at the time of writing). And that’s despite strong financials: first-half revenue tripled to around ₩34bn, while operating profit reached ₩10bn, reversing a loss a year earlier.

So the conclusion is simple: the timing is bad. The latest chip selloff has bruised investors’ appetite, and the poor debut is certainly a warning for upcoming AI listings. Maybe Anthropic will make it, but Nscale — another Nvidia-backed cloud provider — is already facing resistance to its valuation ambitions. The company is reportedly seeking around $30bn, while some investors like it better near $16–19bn – that’s a gap.

Broadly, the Korean KOSPI is down more than 4% at the time of writing, while the TAIEX slips below its 50-DMA. We saw some buying below this level, but investors appear to be waiting for meaty news or a sharper pullback before returning wholeheartedly.

The good news is that AI headlines could change from one minute to the next: one great development and the rally could be back. So I wouldn’t simply walk away from this space, where upside potential continues to compete with the downside risks from high valuations. But a more selective approach favouring companies with strong revenue growth, lower leverage and diversified business models could reduce risks.

Zooming out

The global macroeconomic picture looks cloudy. That’s also why I was saying yesterday that the rotation trade may struggle to gain momentum when yields climb.

US crude is back above $100 per barrel this morning, while Brent is trading above $110 as Middle East tensions escalate. The announced Russian diesel deal may offer limited relief to global energy prices: promises of extra diesel don’t outweigh fears of losing more Middle Eastern oil, especially when Russia’s damaged refineries may struggle to deliver those promises. There is no easy fix to the energy crisis other than an end to hostilities. Full stop.

Moving forward, attention will shift to earnings. Strong results — especially from heavyweight tech companies — could help investors look past the ugly economic, political and geopolitical news for a while, as they did last earnings season. Expectations remain strong: S&P500 Q3 earnings are on track to grow around 29% from a year ago, while analysts expect roughly 21% growth for the European STOXX 600.

And yes, those are strong numbers, but there is a catch: technology and energy boost the US headline, while higher energy prices lift European producers’ profits and squeeze other businesses and their customers. Earlier estimates from Zacks put US earnings growth excluding tech and energy at only around 7.4% only, while European earnings growth excluding energy was closer to 10%. Still, investors have been satisfied with strong headline figures regardless of the sector contributions so far. So the question is whether fresh earnings announcements will be strong enough to keep the bad news in the background.