Twenty-five days until midterms. No reason to expect normal. The AI Bubble/arms race survived another week. “Big Tech Rally Extends Into Fourth Week at AI Bubble Fears Fade.” Meanwhile… “AI Borrowing Spree Hammers Tech Debt in Rush to Reprice Risk.” Another Nasdaq100 record close. Lingering equity enthusiasm only underscores the importance of closely monitoring waning market confidence in AI-related debt.
Axios co-founder Mike Allen (October 3, 2026): “The Financial Times, probably your favorite paper, said ‘Bessent fails to break fever in U.S. bond market.’ What did you learn from that?”
Treasury Secretary Scott Bessent: “Well, I learned that the Financial Times is anti-American, anti-business. And they have a fever – they’re constantly trying to create a problem for the U.S. Let’s leave that disgraced publication in London aside…”
Allen: “So it’s fair to say it’s no longer your favorite paper?”
Bessent: “Never was. But they do have some excellent journalists. But what I would say – what I’ve learned – everyone in the market knows you don’t win every hand. But you win over time. Everyone knows I’m a big basketball fan. Big fan of John Wooden. I’m a big fan of Dean Smith. And how did they win? You trust the process – you put a good process in place. What we can see with bond yields, I would be concerned if we were having some kind of idiosyncratic rise. It’s been a global rise. US bond performance since the President came in has been the best in the world. So, we are not seeing people sell Treasuries to buy German bunds or Japanese bonds. Like I said, I can’t control the bond market. What I can do is try to get people to slow down and think…”
“Never was,” a fan perhaps. But I have a sneaking suspicion that Mr. Bessent never was without his Financial Times paper during peak mortgage financial Bubble excess. The FT’s Gillian Tett has a place in history for her phenomenal reporting on U.S. Credit derivatives, structured finance, and Wall Street excess. While the U.S. media was generally asleep at the wheel, the talented team at the Financial Times burnt the midnight oil reporting on developments leading up to the financial crisis. “Excellent journalists,” indeed. From the previous Bubble period, the names John Authers, Henny Sender, Paul Davies, Michael Mackenzie, Aline van Duyn, Saskia Scholtes, Krishna Guha, Francesco Guerrera, Brooke Masters and others remain worthy of recognition.
The FT was certainly not an enemy of the American people then - and it is not today. Our nation faces a terrible debt problem, while our Treasury Secretary keeps saying dumb things. The FT tradition of deep investigative journalism continues, as their journalists distinguish themselves in reporting on U.S. markets and finance, including recent focus on hedge fund leverage, the repo market, AI debt issues, debt sustainability, the Federal Reserve, US politics, the Iran War, and increasingly fraught geopolitics.
Just this week: “Hedge Funds as Systemic Risk,” “How a Trillion-Dollar Hedge Fund Borrowing Spree Became Wall Street’s Cash Cow,” “Investors Look to Shelter Portfolios From Rising AI Concentration Risks,” “OpenAI Annualised Revenues $20bn Less Than Previously Signalled,” “Insurance Claims to Test Altman and Amodei Liability for ‘Rogue’ AI,” “Wall Street Banks Launch Record $60bn Chip Deal for Broadcom and Anthropic,” “Crowding Out Pits Sovereigns Against AI,” “Surge in Borrowing Costs Hits Corporate America,” “How US Mortgage Bonds Can Trigger a ‘Vicious Loop’ for Treasury Yields,” “Debt in the Spotlight as Paramount Closes $111bn Deal for Warner Bros,” and “Russia’s New Drive to Crush Ukraine” – just to name a few. The finest financial journalism, bar none.
But I digress. A little fact checking doesn’t hurt. Since inauguration day (1/20/25), U.S. 10-year yields have increased 61 bps. Canada yields are up 60 bps, Mexico 39 bps, Peru 42 bps, and Chile 36 bps. Yields over this period were down in Colombia (24bps), Brazil (39 bps), and Panama (113bps). Yields rose 19 bps in Switzerland, 40 bps in New Zealand, and a single basis point in China.
Sure, Treasuries have outperformed Europe, Japan and many Asian markets since the inauguration. But keep in mind that U.S. yields surged over 100 bps in the five months preceding inauguration day, as the Fed commenced a misguided loosening cycle. Back to September 30th, 2024, of the major sovereign markets, only Japan (215 bps) and France (194 bps) have seen larger rises in 10-year yields than the U.S. (146 bps).”
Ten-year Treasury yields traded to 5.36% intraday Wednesday. Yields have not posted a higher close since April 2, 2002. Sugar-coating and subterfuge will not cut it anymore.
Bessent: “I would be concerned if we were having some kind of idiosyncratic rise.”
“Idiosyncratic” has been bandied about occasionally over recent decades as various global debt crises erupted. It’s code for “someone else’s problem – nothing to see here in the land of the world’s safe haven Treasury market and preeminent central bank liquidity backstop.”
Perhaps Bessent has an argument with “idiosyncratic.” But this completely misses key analysis: idiosyncratic is hardly relevant in an era of deepening monumental systemic risk. As we’ve witnessed repeatedly, idiosyncratic is relatively easy to manage – simply flush a troubled market with Credit and liquidity and watch it reflate. Manifesting at the “periphery,” idiosyncratic risk is inherently neutralized by a robust “core.” But when the point of an unsound and fragile “core” is reached, you confront today’s predicament.
Sovereign debt problems are these days systemic rather than idiosyncratic. And, importantly, the U.S. is the epicenter of global government debt. Moreover, the U.S. is at the epicenter of a historic international corporate debt boom. Perhaps most pressing, the U.S. is today the epicenter of the global AI Bubble and arms race. The world will surely yearn for the days of “idiosyncratic.”
October 8 – Bloomberg (Caleb Mutua, Preeti Singh, and Laura Benitez): “The rush to finance AI is rattling investors in the more than $10 trillion US corporate market, sparking a repricing of risks around some of the biggest technology companies… Heavyweights including Oracle Corp., Broadcom Inc. and SpaceX are among the borrowers that priced nearly half a trillion dollars of new debt this year to pay for the infrastructure powering artificial intelligence… The tally is widely expected to rise by orders of magnitude in the months and years ahead. Broadcom alone may raise about $600 billion to finance computing power in the coming years… The pace and sheer scale of the borrowings, combined with unknowns around the technology and rising interest rates, is putting growing pressure on the sector… In recent days, news of a wave of potential fresh financings from SpaceX and Broadcom, possibly topping $100 billion, sent credit derivatives linked to hyperscalers and chipmakers climbing to prices that suggest traders see a growing risk of a default over the next five years. For Oracle, it’s now above 20%, for SpaceX it’s about 16% — and even Nvidia Corp… is given a more than 7% risk of default in that time.”
Oracle (’36) yields surged to a record 7.62% intraday Wednesday, before closing the week at 7.57%. Oracle yields traded below 6% in early June. CoreWeave’s six-year yields traded to a record 12.84% intraday Friday, before closing the week up 44 bps at 12.73%. CoreWeave yields were 147 bps higher over the past month, and up a staggering 423 bps since its June 18th issuance. In price terms, the bond has sunk from par (100) to 83 cents (down 17%).
Meta (’36) yields rose to 6.34% Wednesday, with a Friday close of 6.20%. This yield ended the week 40 bps higher on the month and up 85 bps over four months. Meta bond yields traded at 5.27% on June 29th.
Wednesday had that unraveling feel. Treasury yields rose to highs back to 2002 (UK yields 28-year high), on the back of higher crude prices (Houthis fire missiles on Riyadh); a stronger-than-expected NY Fed inflation expectations reading (3-yr high 3.90%); and from Fed minutes, “officials see another hike coming.” Fortunately, the 10-year Treasury action was well-received (any poor auctions before the midterms?). Ten-year yields closed the session eight bps below intraday highs. Notably, fragile technology debt lagged, reeling from “SpaceX’s $40 Billion Financing Shock.”
October 6 – Financial Times (Michelle Chan, Sujeet Indap, Stephen Morris and Michael Acton): “Elon Musk’s SpaceX is seeking to raise $40bn to purchase Nvidia chips as the AI and rocket group amplifies its bet on the chipmaker’s advanced technology. The company is seeking to raise about $10bn in bank loans and $30bn in investment-grade debt to fund its blockbuster chip order, according to people familiar... Private capital group Apollo is expected to lead the financing effort and help sell the debt to a broad base of investors. Bond group Pimco was among a small group of lenders in talks to fund the deal… SpaceX’s financing plans underscore the vast sums that are being raised to pay for investments in data centres, chips and other infrastructure underpinning AI.”
The FT article included a couple sentences that underscore late-cycle craziness: “Investors whom SpaceX has previously approached about financing its multibillion-dollar chip purchase said they only received a short two-page deal memo with pictures of outer space and an arrow pointing out that the company was going to build data centres ‘somewhere in the universe'. ‘How are we supposed to take that to the IC?’ one of the people said, referring to the in-house investment committee that approves transactions.”
SpaceX’s 10-year (’36) yield jumped to 7.35% intraday Wednesday, before ending the week at 7.18%. This bond was issued (at par) on June 26th at a yield of 5.90%. The price closed the week at $91. SpaceX CDS closed Thursday up 20 bps w-t-d at 200 bps, before ending the week with a one-month gain of 36 bps to 199. Curious to see the stock up 10% over the past month, as the company’s bonds were clocked and CDS spiked.
High-yield CDS traded above 345 bps in intraday Thursday trading – which would have been the highest close since early April (ended the week at 337). Investment-grade tech bonds were under pressure. Notably, Amazon yields spiked intraday Wednesday high to a record 6.13% - up 48 bps over the past month. Microsoft yields saw a midweek surge to a record 5.63% - up a notable 82 bps over the last month. Broadcom yields traded Wednesday to a record 6.53% - up 57 bps over the previous months and 127 higher over four months.
Market debt issues proliferated from space to the sky and beyond. FT: “Skydance’s Debt Pile Takes the Spotlight.” Other headlines included “Skydance’s $80 Billion Debt Bomb: How Will Warner Bros. and Paramount’s New Owner Make It Work?,” “Skydance’s High-Wire Act Begins,” “Skydance Junk Bonds Hit Fresh Lows as Broader Market Soft,” “Paramount’s Monster Debt Offers Few Safeguards to Investors.” In the “we’ll see” category, “David Ellison: Skydance Can Pay Down Debt While Still Growing.”
Jumping another 14 bps Friday, Skydance’s high-yield unsecured (9 1/8 ’36) bond yield surged another 35 bps this week to 10.16% - with the yield rising an ominous 103 bps since the September 30th issuance. In price terms, this bond sank from par (100) to 93.60 in only seven sessions.
I often discuss how “terminal phase excess” fuels a parabolic rise in systemic risk. Skydance’s $100 billion of debt and literally Trillions of AI-related borrowings illuminate this dynamic exceptionally well. I refer to “terminal” for good reason. First, there is accelerated expansion of increasingly risky debt. Second, late-cycle euphoria and the perception of endless liquidity ensure distorted markets and epic mispricings. Major losses become inevitable – and the longer excesses run rampant, the greater the parabolic rise of problem Credit.
A new paradigm is upon us. It hasn’t for a while, but risk matters today – and it will only matter more over time. It’s worth noting that leveraged loan (LSTA Index) prices declined another 25 cents this week (65 cent 3-week drop) to 94.97 – now only two cents from the low back to April. It has quickly become an inhospitable environment for high-risk borrowers seeking new funds or needing to refinance. Surging borrowing costs are shattering scores of business models.
The good news: high yield spreads, closing Friday at 308 bps, remain 140 bps below “liberation day” spike levels from April 2025. Typically, in acutely unstable markets, safe haven buying and sinking Treasury yields are a significant force behind widening corporate spreads. The bad news: because of the systemic nature of the unfolding Credit crisis, Treasury and sovereign yields have risen substantially. Spreads don’t tell the story. At 8.24%, high yield spreads are today only 34 bps below April 2025 spike highs.
On the one hand, levered corporate “carry trade” positions (i.e. short Treasuries to fund higher-yielding corporate debt) have so far been supported by sinking Treasury prices (rising yields). Only marginal deleveraging has materialized thus far. On the other hand, significant losses have been endemic throughout the corporate Credit investor universe.
When deleveraging does begin in earnest, it will rock an already impaired marketplace. And the upheaval will likely be systemic rather than idiosyncratic – Treasuries, MBS, corporates, munis, and structured finance. Moreover, systemic U.S. deleveraging surely means global de-risking/deleveraging.
It was curious to see money market fund assets surge $72 billion last week to a record $7.964 TN – along with a chunky $79 jump in outstanding commercial paper. That this monetary inflation corresponded with a rally to new highs in tech stocks (i.e., Nasdaq100 and MAG7) is not surprising. Money fund assets at record highs support the thesis of only modest deleveraging. It also suggests that big tech evolved into a powerful bastion of levered speculation and liquidity creation (i.e. options, ETFs, margin debt, and derivatives).
But even marginal deleveraging coupled with massive AI-related borrowings has triggered tighter financial conditions. And this dynamic has spurred a powerful rush to the markets to issue debt before illiquidity becomes a serious issue. SpaceX… “SoftBank Seeks $100 Billion From Gulf States for AI.” With investors already nursing substantial losses, it’s unclear who will have the appetite to accommodate what will surely be an even more intense push to raise funds for the global AI arms race.
It has become a deeply systemic issue: Deleveraging and the AI Bubble are irreconcilable. This is a serious dilemma for the S&P500 and equity index universe, for bond indices and ETFs, for Wall Street structured finance, for bank loan portfolios, and for the U.S. and global economies. Bond markets are sending a signal that deserves to be taken seriously.
October 9 – Bloomberg (Julia Fioretti, Sangmi Cha and Manuel Baigorri): “In 48 hours, Firmus Grid Ltd. went from a rising star of the artificial intelligence data center boom to one of the biggest deal flops in recent memory. After months of touting itself as an essential artificial intelligence play, the Nvidia Corp.-backed company was on the cusp of pulling off one of Australia’s biggest-ever initial public offerings of up to $5.5 billion, and at a valuation fit for a top 10 player in the industry. But that story wilted under the scrutiny of US fund managers that bankers were counting on to buy a chunk of the deal.”
For the Week
The S&P500 rallied 1.2% (up 14.1% y-t-d), and the Dow gained 0.9% (up 7.5%). The Utilities rallied 3.4% (down 1.7%). The Banks were unchanged (up 3.9%), while the Broker/Dealers rose 2.3% (up 17.3%). The Transports declined 1.0% (up 14.1%). The S&P 400 Midcaps were little changed (up 11.0%), while the small cap Russell 2000 dipped 0.9% (up 13.1%). The Nasdaq100 added 0.2% (up 22.3%). The Semiconductors dropped 4.3% (up 77.5%). The Biotechs declined 0.4% (up 29.1%). With bullion gaining $53, the HUI gold index recovered 1.9% (up 7.0%).
Three-month Treasury bill rates ended the week at 4.0527%. Two-year government yields declined four bps to 4.79% (up 131bps y-t-d). Five-year T-note yields fell four bps to 5.02% (up 129bps). Ten-year Treasury yields slipped three bps to 5.24% (up 107bps). Long bond yields dipped two bps to 5.60% (up 75bps). Benchmark Fannie Mae MBS yields declined six bps to 6.37% (up 133bps).
Italian 10-year yields declined three bps to 4.57% (up 102bps y-t-d). Greek 10-year yields fell six bps to 4.41% (up 97bps). Spain's 10-year yields added a basis point to 4.10% (up 81bps). German bund yields increased two bps to 3.48% (up 63bps). French yields slipped two bps to 4.85% (up 129bps). The French to German 10-year bond spread narrowed four bps to 137 bps. U.K. 10-year gilt yields jumped eight bps to 5.44% (up 96bps). U.K.’s FTSE equities index increased 0.9% (up 6.1% y-t-d).
Japan’s Nikkei 225 Equities Index added 1.1% (up 37.1% y-t-d). Japan’s 10-year “JGB” yields retreated eight bps to 3.02% (up 95bps y-t-d). France’s CAC40 fell 1.2% (down 4.2%). The German DAX equities index slipped 0.6% (up 2.4%). Spain’s IBEX 35 equities index dipped 0.3% (up 10.0%). Italy’s FTSE MIB index dropped 1.5% (up 10.7%). EM equities were mixed. Brazil’s Bovespa index surged 8.8% (up 29.8%), and Mexico’s Bolsa index rallied 2.4% (up 2.7%). South Korea’s Kospi sank 5.4% (up 57.2%). India’s Sensex equities index recovered 0.8% (down 15.0%). China’s Shanghai Exchange Index declined 0.7% (down 3.9%). Turkey’s Borsa Istanbul National 100 index was little changed (up 8.9%).
Federal Reserve Credit increased $3.9 billion last week to $6.696 TN, with a 43-week expansion of $206 billion. Fed Credit was down $2.194 TN from the June 22, 2022, peak. Since the September 11, 2019 restart of QE, Fed Credit has expanded $2.969 TN, or 80%. Fed Credit inflated $3.885 TN, or 138%, since November 7, 2012 (726 weeks). Elsewhere, NY Fed holdings for foreign owners of Treasury, Agency Debt dropped another $16.2 billion last week to $2.851 TN - the low back to August 2010. “Custody holdings” were down $255 billion y-o-y, or 8.2%.
Total money market fund assets (MMFA) surged $72.3 billion to a record $7.964 TN. MMFA were up $578 billion, or 7.8%, y-o-y - having ballooned a historic $3.332 TN, or 72%, since October 26, 2022.
Total Commercial Paper surged $78.9 billion to $1.486 TN - the high back to 2009. CP increased $138 billion, or 10.3%, y-o-y.
Freddie Mac 30-year fixed mortgage rates jumped another 13 bps to 7.40% (up 110bps y-o-y) - the high back to November 2023. Fifteen-year rates rose 13 bps to 6.73% (up 120bps) - also the high since November 2023. Bankrate’s survey of jumbo mortgage borrowing costs had the 30-year fixed rate up 16 bps to a two-year high of 7.47% (up 94bps).
Currency Watch
For the week, the U.S. Dollar Index added 0.3% to 102.213 (up 4.0% y-t-d). On the upside, the Brazilian real increased 4.5%, the South African rand 0.9%, the Norwegian krone 0.5%, the Australian dollar 0.4%, and the Swedish krona 0.3%. On the downside, the Mexican peso declined 1.4%, the euro 0.5%, the Japanese yen 0.3%, the Singapore dollar 0.2%, the Swiss franc 0.2%, and the British pound 0.1%. China's (onshore) renminbi gained 0.20% versus the dollar (up 4.41% y-t-d).
Commodities Watch
October 5 – Bloomberg (Alexander Weber and Mark Burton): “Rising government debt levels strengthens the case for central banks to increase their gold holdings, according to Bundesbank President Joachim Nagel. ‘The recent rise in global government bond yields has boosted the relative attractiveness of debt securities again,’ he said... ‘At the same time, rising debt levels have increased concerns about the credit risk of these assets. Furthermore, geopolitical risks are likely to continue to shape reserve management decisions.’ Speaking in Sorrento, Italy, Nagel concluded that ‘taken together, the case for further diversification into gold remains significant’ for central banks.”
October 6 – Bloomberg (Jessica Zhou): “China added more gold to reserves last month, pushing a buying streak close to the two-year mark as prices weaken toward $4,000 an ounce. Holdings of bullion at the People’s Bank of China expanded by 740,000 ounces in September, marking the 23rd month of accumulation… The central bank — among the biggest gold buyers in the world — has stepped up purchases in recent months after prices fell.”
The Bloomberg Commodities Index rose 1.7% (up 31.2% y-t-d). Spot Gold recovered 1.3% to $4,194 (down 2.9%). Silver increased 0.8% to $60.8224 (down 15.1%). WTI Crude added 74 cents, or 0.8%, to $91.85 (up 60%). Gasoline slipped 0.5% (up 92%), while Natural Gas jumped 6.1% to $3.22 (down 13%). Copper rallied 2.2% (up 18%). Wheat fell 1.8% (up 32%), and Corn dropped 3.6% (up 9%). Bitcoin fell $1,900, or 2.2%, to $82,600 (down 5.7%).
Market Instability Watch
October 6 – Reuters (Gertrude Chavez-Dreyfuss): “A stream of investor cash flowing into money-market funds has slowed significantly this year, pushing up yields on Treasury bills and potentially leaving markets vulnerable to short-term funding issues. Money fund inflows have totaled just $158 billion in the first three quarters this year, TD Securities data show, down from $823 billion for the full year of 2025 and $840 billion in 2024.”
October 6 – Yahoo Finance (Brian Sozzi): “Rising interest rates have the US on a collision course with the need to finally deal with its bloated debt pile, Goldman Sachs warns. ‘Persistently higher rates would boost interest expense as a share of GDP — a key gauge of the cash outflows needed to service the debt — and push the debt-to-GDP ratio up to 132% by 2035, 10 percentage points above our baseline, raising the odds that deficit reduction becomes necessary sooner to stabilize the debt,’ Goldman Sachs strategist Pierfrancesco Mei wrote…”
October 5 – Bloomberg (Shuli Ren): “A great asset migration is taking place in Japan. Yet as investors reallocate their overseas capital from bonds to stocks and unwind yen-funded carry trades, they’re also deepening France’s sovereign debt crisis. Some funds at Sumitomo Mitsui DS Asset Management have sold their entire holdings of French government bonds amid concerns about the European nation’s fiscal situation, shifting capital to the safer German bunds and short-term Japanese government notes instead. Japan is one of France’s largest creditors, holding 5.2% as of 2025, according to Dutch bank ABN-AMRO.”
October 4 – Financial Times (Harriet Clarfelt): “Investors are hunting for strategies that will protect their portfolios against too much exposure to AI, as financial markets and the wider US economy become increasingly dependent on the health of the booming sector. US equity and credit markets have become increasingly concentrated in AI-related companies. More than two-thirds of groups on the Russell 1000 index of large US groups are linked to AI, either directly or because the technology is becoming embedded in their business models, according to Citigroup... At the same time, Big Tech ‘hyperscalers’ and companies that are beneficiaries of the AI spending boom make up about 16% of the US high-grade bond market after a huge borrowing binge in recent years…”
October 8 – Bloomberg (Julien Ponthus and Bre Bradham): “Banks have been Europe’s best-performing stocks for two years, and were on pace for stellar gains again in 2026. The return of French debt worries is threatening to thwart the rally. The Stoxx 600 banks sector fell as much as 2.2% on Thursday, adding to Wednesday’s 3.3% selloff and putting it on course for the biggest two-day decline since March. Societe Generale SA has fallen 26% from its August peak, while Deutsche Bank AG has tumbled 18% from its high point last month.”
October 4 – Financial Times (Calum Kapoor and Emma Dunkley): “Global pension funds overseeing billions of dollars have reduced exposure to US equities, as concerns mount over lofty valuations and the high concentration of AI stocks in the market. Large schemes, including the Australian Retirement Trust (ART), which manages about US$260bn, Canada’s US$388bn La Caisse and the UK’s £45bn People’s Pension, are underweight global benchmarks… A handful of big tech and AI-focused stocks including Nvidia, Alphabet and Microsoft have driven the S&P 500 index’s rally over the past few years, pushing US market concentration to an all-time high.”
U.S. Credit Trouble Watch
October 5 – Financial Times (Kate Duguid, Emily Herbert, Joshua Franklin and Michelle Chan): “A sharp sell-off in US government bonds is starting to reverberate across corporate America, forcing companies to overhaul their borrowing plans and even raising the spectre of defaults among the most lowly rated businesses. Borrowing costs for companies with the lowest credit ratings hit their highest level since May 2020 this month at 17%, driven by the rise in Treasury yields to multiyear highs and by investors demanding more compensation for lending to such businesses. The risk premium for companies rated triple C or lower has risen to 12 percentage points, the biggest since 2022. Analysts said companies with floating-rate loans, and those needing to refinance debt in the coming months, were most at risk from the government bond sell-off, which last week pushed the yield on the 10-year Treasury note to its highest since 2002. ‘Investors are increasingly demanding more compensation for taking on the corporate credit risk,’ said James Reilly, a senior markets economist at Capital Economics.”
October 5 – Wall Street Journal (Peter Grant): “A growing number of commercial real-estate buyers are threatening to walk away from recent transactions unless the seller offers better terms. Rapidly rising interest rates are to blame. Investors who agreed to a purchase price earlier this year when financing was cheaper are now demanding price cuts or other concessions before closing. That insistence on retrading deals began when bond yields started to rise in late summer... ‘Rates went up, what, just a few days ago and I’m already getting calls where they’re talking retrade,’ Jeff Powers, a Cushman & Wakefield managing director, said last month. The typical six to 12 months between when a buyer signs a contract and when the sale is completed can make a substantial difference in financing costs when borrowing rates are rising as rapidly as they are now.”
October 6 – Bloomberg (Josie Reich): “The deeply distressed tail of the leveraged loan universe has grown to levels not seen since the beginning of the pandemic, with technology the single biggest sector under pressure. That’s according to strategists at JPMorgan…, who… wrote that the value of loans trading below 60 cents on the dollar, or deeply distressed levels, rose to $65 billion from $40 billion a year ago, to the highest since March 2020. Distressed leveraged loans, or those trading at or below 80 cents on the dollar, are also on the rise, totaling $139.8 billion, a nearly 90% jump over the past 12 months and just $4 billion shy of a high in May 2020, strategists including Nelson Jantzen wrote…”
October 7 – Bloomberg (Rachel Graf, Carmen Arroyo and Eliza Ronalds-Hannon): “A US lender specializing in loans to international students has largely shuttered its operations after losing access to fresh financing, marking one of the most significant corporate collapses triggered by the Trump administration’s immigration crackdown. The firm, Mpower Financing, had come to rely heavily on borrowers from several African nations, particularly Zimbabwe…”
Global Credit and Crisis Watch
October 6 – Politico (Johanna Treeck): “France’s borrowing costs are surging as investors around the world wake up to the risk of a full-blown public debt crisis in the EU’s second-largest economy. Stress in financial markets has now started to spread beyond its borders, raising fears that political dysfunction in France could cause a broader, regional problem. Memories of the sovereign debt crisis that threatened the single currency’s survival 15 years ago are starting to stir. But is it really going to get that bad again? France hasn’t run a balanced budget in more than 30 years. It hasn’t been able to keep its budget deficit within the EU-agreed limit since 2019… France’s debt burden is now so great — and growing so quickly — that some are starting to worry it can’t repay it all. What happens if French woes get worse? Is Europe facing another existential crisis? Will the European Central Bank run to the rescue with ‘whatever it takes’? And will it be enough?”
October 8 – Wall Street Journal (Greg Ip): “The spike in French bond yields is mostly driven by the country’s crushing debt and politicians’ inability to agree on a solution. And, perhaps, the remote prospect of a truly extreme solution: default. In August far-left leader Jean-Luc Mélenchon, a candidate in next year’s presidential election, suggested canceling all the government debt held by the Bank of France… ‘Throw it in the fire,’ he said. (France’s national debt in August was 2.9 trillion euros, or $3.25 trillion, of which the Bank of France holds €544 billion.) Even if private creditors were spared, rating agencies might consider cancellation of central bank holdings a ‘selective default.’ Partial repudiation could trigger payout on credit-default swaps.”
October 4 – Bloomberg (Ruth Carson and Masaki Kondo): “Japanese investors hold far more French bonds than benchmark weightings recommend, raising the threat of a new wave of selling that could deepen France’s debt rout. Investors in the Asian nation owned an estimated ¥23 trillion ($145bn) of French bonds as of July… That’s 6.6% of the Asian nation’s total overseas debt holdings, making them the most overweight in the euro region relative to the Bloomberg Global Aggregate Index.”
October 7 – Wall Street Journal (Chelsey Dulaney and Stacy Meichtry): “France is considering boosting issuance of shorter-term debt, as investors grow more hesitant to lend to the debt-laden country for longer periods… Finance Minister Roland Lescure said France would be ‘strategic’ in issuing new debt at a time when demand from investors has been rattled by the country’s deepening financial woes.”
October 7 – UK Telegraph (Chris Price): “The cost of long-term UK government borrowing hit its highest level since 1998 on Wednesday… The yield on 30-year gilts, the effective interest rate the Treasury pays to borrow money, jumped at its fastest pace since May, from 5.90pc to 6.03pc.”
October 6 – CNBC (Chloe Taylor): “The U.K. is ‘on thin ice’ ahead of its critical Autumn Budget, according to a former chief economist of the Bank of England, who warned the government must curb public spending and refrain from painful tax hikes… Andy Haldane — a member of the central bank’s Monetary Policy Committee until 2021 — said there were ‘perils’ running into the budget update… ‘The truth is we are skating on pretty thin ice in fiscal terms, and nothing would be worse both economically and politically than if the ice were to crack beneath our feet,’ Haldane said…”
October 5 – Financial Times (Lee Harris): “Insurers are preparing for multimillion-dollar claims stemming from AI agents going ‘rogue’, with growing concern that top executives such as OpenAI’s Sam Altman and Anthropic’s Dario Amodei could be held liable for the actions of their models. A string of breaches caused by AI agents that have broken free of parent companies’ controls, such as OpenAI’s hacking of start-up Hugging Face, has led insurers and their lawyers to study whether they will be asked to foot the bill of potential lawsuits and damages. Insurance broker Aon analysed more than 300 AI-related legal cases and found that insurers could also be on the hook to pay claims under policies covering crime, intellectual property, media liability, cyber security, and technology errors and omissions.”
October 5 – Bloomberg (David Ramli, Ruth Carson, and Haslinda Amin): “Billionaire Ray Dalio warned that Treasuries are vulnerable to a pullback of demand from China and Japan… The US relies on foreign capital for about a third of its debt, and a lot of that is coming from Japan and China, Dalio, the founder of Bridgewater Associates, said… ‘The Chinese don’t want to continue to accumulate — there are geopolitical issues as well as economic issues,’ he said. ‘When you have a debtor-creditor relationship and you have an adversary relationship, that’s a very difficult dynamic.’ He added that Japan has lent ‘a lot of money’ that the country now wants to take back.”
Global Boom Watch
October 5 – Bloomberg (Aileen Chuang and Pearl Liu): “The next wave of artificial intelligence debt financing is taking off in Asia. Companies building hundreds of data centers across the region are also seeking funds to buy the advanced computer chips that will power them. While borrowing to acquire graphics processing units has grown rapidly in the US, the few such loans secured in Asia have mostly involved private credit funds that were willing to take more risk. Now banks are becoming more comfortable with GPU financing, significantly widening the pool of capital available for the next phase of the AI race. That money will be crucial given PricewaterhouseCoopers LLP estimates Asia’s spending on data centers could reach $8.2 trillion by 2050, with the vast majority going to hardware including GPUs and servers.”
October 8 – Wall Street Journal (Paul Hannon): “The AI investment boom is driving an expansion in global goods trade volumes at a pace last seen during the period of rapid globalization that was ended by the global financial crisis, according to new forecasts… by the World Trade Organization. However, that expansion is being driven by a small number of economies, with significant parts of the world missing out, while trade in services is set to grow more slowly than previously expected as a result of the war between the U.S. and Iran. The Geneva-based body raised its growth forecast for the global trade in goods this year to 3.9% from 1.9%, and lifted its projection for next year to 4.1% from 2.6%.”
October 7 – Bloomberg (Natalia Kniazhevich and Lisa Abramowicz): “Former Treasury Secretary Robert Rubin warned that the artificial-intelligence investment boom could bring major productivity gains but also create financial and social risks that markets may not be fully pricing. Rubin, who served as Treasury chief during the internet boom in the late 1990s, said he’s particularly concerned about ‘circularity risk’ in the AI ecosystem. The term refers to the overlapping of commitments among suppliers, customers and investors — such as between chipmakers and software firms. ‘Some of these very big AI companies have enormous commitments, and then there are a lot of suppliers, and a lot of suppliers have borrowed against those commitments… What happens if they can’t fulfill those commitments or all those borrowed against them? It’s called circularity risk.’”
October 5 – Financial Times (Michelle Chan): “Wall Street banks… began offloading part of a new $60bn debt package to fund Anthropic’s lease of Google semiconductors, the largest chip-financing deal to date as tech companies race to secure AI computing power. Bank of America, Citigroup and Morgan Stanley, which have committed to fund the deal, have reached out to other banks to purchase portions of the debt, according to people familiar with the matter. The financing, guaranteed by Broadcom, is seen as a bellwether for appetite in AI debt.”
October 5 – Bloomberg (Paula Seligson and Gowri Gurumurthy): “JPMorgan... is pitching a yield of about 11% on a $5 billion leveraged-loan sale on behalf of Volta Infrastructure Holdings Ltd., one of the highest borrowing costs seen in the market for risky debt that’s become popular for financing the AI boom. Purchasing the specialized chips needed to run AI models is an expensive endeavor.”
October 5 – Bloomberg (Menghan Xiao and Charles Williams): “The growing demand for capital to fund artificial intelligence investment is filtering into a little-watched corner of the asset-backed securities market: bonds secured by equipment loans and leases. Stonebriar Commercial Finance is selling around $869 million of asset-backed securities… The offering would be one of the first broadly syndicated equipment financing ABS backed in part by AI chip loans, known as GPU loans…”
October 6 – Wall Street Journal (Joe Stonor): “Companies raised more than $1 trillion in global equity markets for only the second time ever over the first nine months of the year, yet higher borrowing costs and artificial-intelligence fears are starting to dampen spirits, a Mergermarket report said. Finnish smart-ring maker Oura postponed its public offering last month blaming ‘uncertainty in the IPO market.’ The company joined a host of private companies that reportedly delayed their anticipated IPO plans, including SoftBank-backed SB Energy. Cloud-services company Nscale may be delaying its roadshow…”
October 4 – Financial Times (Oliver Barnes and Ivan Levingston): “Global dealmaking fell below $1tn in the third quarter for the first time since Donald Trump unleashed his trade war last year, as high interest rates threaten to derail a blockbuster year for mergers and acquisitions. Activity dropped to $986bn in the three months to September, marking a sharp fall from the record level of close to $1.7tn in the previous quarter, according to LSEG. The year-on-year decline was more measured, with activity down 13%.”
Leveraged Speculation Watch
October 7 – Axios (Emily Peck): “Hedge funds are playing an increasingly important role in the two hottest markets of the moment — U.S. Treasury securities and AI stocks — and they’re doing it with a lot of borrowed money. In times of stress, unwinding that borrowing, or leverage, can turn a sell-off into a crisis that spreads beyond hedge funds into the banking system and the wider economy. That was the message from a report… from the International Monetary Fund… Hedge fund assets have doubled since 2020, to nearly $13 trillion. That includes $7.7 trillion from borrowing… ‘Leverage that looks perfectly manageable right now’ can turn dangerous ‘overnight,’ said Valentina Bruno, a finance professor at American University… The total size of every bet that hedge funds make — all the assets they manage, plus the face value of their derivatives — was $42.2 trillion through the first quarter. A lot of that is netted out — literally by hedging — but it’s built with borrowed money, so it can unwind in a vicious cycle.”
October 6 – Reuters (Pete Schroeder): “Hedge funds have more than tripled in size in the last decade and now play increasingly critical market roles, the International Monetary Fund said…, while warning that the funds’ use of leverage and overall opacity can inject risks into the financial system. The findings were published… by the IMF as it released a chapter of its Global Financial Stability Report… Hedge funds are playing an increasingly prominent role in trading, liquidity and risk transfers, as assets at the funds now stand at roughly $13 trillion in early 2026, up significantly from just $4 trillion in 2013. Hedge fund growth has primarily come through leverage, including synthetic leverage through derivatives. Such funds have grown their footprint significantly in sovereign bond markets, particularly US Treasuries. Hedge funds now account for 9% of the Treasury market, compared to just 4% in 2022.”
October 7 – Wall Street Journal (Costas Mourselas, Ortenca Aliaj and Joshua Franklin): “In February Goldman Sachs invited top hedge fund executives to a 500-acre resort outside London. The Wall Street bank delivered a clear message: you are no longer our rivals but among our most valued clients. The meeting underscored what has become an inescapable reality on Wall Street. US banks are generating record trading profits. But they are not the ones doing the trading. Firms such as Jane Street and Citadel have aggressively expanded into banks’ traditional turf, dominating the core business of market making as well as placing big bets on market moves. But their insatiable demand for financing to juice those trades has made them irresistible clients for lenders and a powerful engine for profits… In market making, ‘banks are struggling to compete’, said Mike Webb, Barclays’ global head of liquid financing. ‘But financing is a thing that banks do and there is a big moat around it.’ The moat is built on credit lines that lenders provide to trading giants that run into trillions of dollars. Hedge funds’ borrowing from banks has tripled since 2020…”
October 7 – Financial Times (Costas Mourselas, Robert Smith and Euan Healy): “London credit investor Arini Capital Management’s flagship fund has suffered losses of almost 16% this year, after enduring a string of soured bets on the debt of financially troubled companies. Arini, one of Europe’s fastest-growing credit hedge funds, experienced estimated losses of 7.6% in September in its master fund…, taking its year-to-date losses to 15.7%... September was the third consecutive month of losses for the largest fund of the $22bn-in-assets credit specialist…”
October 9 – Bloomberg (Hema Parmar): “Lone Pine Capital’s hedge fund, up 44% this year through June, has lost nearly all those gains in the last quarter due to wrong-way stock bets and short wagers. Its Cypress hedge fund is now up just 0.6% this year through September... The fund tumbled nearly 25% in July alone, before posting additional losses in subsequent months, resulting in a roughly 30% decline in the third quarter…”
October 6 – Reuters (Phoebe Seers and Iain Withers): “A hedge fund industry group has warned the Bank of England that proposed reforms to the market for short-term loans secured against UK government bonds, known as ‘repo’, could backfire and reduce liquidity at times of market stress. Industry body Alternative Investment Management Association wrote to the BoE this month in a letter… that implementing proposed central clearing in the market could create ‘new vulnerabilities’ and expose investors to more volatility. It marks a more direct warning after the lobby’s response last year to the central bank's initial proposals, which flagged ‘significant structural issues.’”
Iran War Watch
October 4 – Reuters: “The Strait of Hormuz will not reopen until seven Iranian conditions set out in a June interim agreement with the US are met, state media reported Iran’s parliament speaker Mohammad Baqer Qalibaf as saying... Iran presented a proposal during the UN General Assembly under which the Strait of Hormuz waterway could be reopened and normal maritime passage restored within seven days if the conditions were met, with the US replying to this proposal last week via Qatari intermediaries.”
October 7 – Associated Press (Samy Magdy): “Iran-backed Houthi rebels in Yemen claimed new attacks on airports and military facilities in neighboring Saudi Arabia on Wednesday as the kingdom is pulled deeper into the latest front in the Iran war, which also threatens a crucial shipping alternative to the Strait of Hormuz. As the Saudi capital is targeted again, new cage-like fences have been erected this week around fuel tanks and other equipment of the Saudi state-run Aramco oil company near the Riyadh airport. The kingdom… has seen oil and military assets targeted in recent days. The Houthis’ military spokesperson, Brig. Gen. Yahya Saree, said on social media that the rebels launched ballistic missiles and drones against King Khalid International Airport in Riyadh.”
October 3 – Reuters: “Yemen’s Iran-aligned Houthis said… they had targeted an Aramco facility in the Saudi capital Riyadh with ballistic missiles and drones, saying the attack was in retaliation for Saudi attacks on Yemen’s Sanaa and other provinces. A large plume of smoke and fire was seen rising in the vicinity of an Aramco facility in Riyadh earlier on Saturday…”
October 7 – Financial Times (Ahmed Al Omran): “Houthi rebels in Yemen targeted Aden’s airport and launched missiles at Saudi Arabia’s capital Riyadh on Wednesday as Yemeni forces backed by the kingdom battled to reclaim control of the strategic Bab al-Mandab waterway. It was the first such attack on the airport of Aden — a southern port city that serves as the internationally recognised government’s de facto capital — since the long-running conflict reignited in July, and came two days after the government announced a major offensive to recapture territory taken by the Iran-backed rebels.”
October 5 – Axios (Barak Ravid): “The U.S. military evacuated a dozen B-1 bombers from the RAF Fairford airbase in the UK over the weekend as a result of intelligence suggesting an Iranian drone attack, U.S. officials said. Such an Iranian drone attack from British soil against the base could have led to the killing of U.S. service members and destroyed the strategic bombers. It would have been an unprecedented and brazen attack by Iran against a U.S. base in Europe — with the potential for dramatic escalation in the war in the Middle East.”
Iran War Ramifications Watch
October 8 – Reuters (Jonathan Saul and Parisa Hafezi): “Tankers are facing a higher risk of attacks and intimidation as they try to get critical shipments through the Strait of Hormuz after Iran issued new warnings it would block routes that it has not authorized… Last week already saw the biggest number of attacks on tankers in the key waterway since the Iran war began… Iran has now warned regional countries that any attempt to open new routes for oil exports would be considered hostile, a senior regional official close to Tehran told Reuters. It was part of a plan agreed by both Iran’s political leaders and its Revolutionary Guards… ‘Iran has absolutely no intention of allowing control of the Strait of Hormuz to slip from its hands, and has plans ready to block routes that some regional countries have for exporting oil,’ a senior diplomat in the region briefed by Tehran told Reuters…”
October 7 – Reuters (Florence Tan): “The number of vessels transiting the Strait of Hormuz fell to the lowest in more than two months after attacks on tankers in the key waterway reached their highest last week since the start of the US-Israeli war with Iran, shipping data showed. Seven commodity vessels passed through the strait on Tuesday, for the lowest figure since July 23…”
October 6 – Reuters (Robert Harvey, Stephanie Kelly and Shadia Nasralla): “The amount of oil in storage that is accessible to the global market is running low, industry executives said…, making the market more fragile and putting upward pressure on prices. Governments and energy companies have drawn oil from stockpiles to alleviate pressure in a global oil market facing unprecedented supply disruptions this year due to the wars in the Middle East and Ukraine. ‘Less than 6 billion barrels of commercial inventories remain today, with the vast majority not practically available, so the system is already straining,’ Amin Nasser, CEO of Saudi Arabia's state oil company Saudi Aramco, said... More than 1 billion barrels of oil have been released mainly from onshore commercial inventories since the start of this year's Middle East crisis, which was the last major tool in the box, Nasser said.”
October 5 – Financial Times (Anthony Di Paola, Grant Smith and Charles Gorrivan): “The oil stockpiles that cushion the world from supply shocks have become ‘scarily thin,’ putting markets at risk of worsening unless the Strait of Hormuz reopens, according to the head of Saudi Arabia’s state producer… ‘Until Hormuz fully re-opens and confidence returns, the crude reality is that pressure at both ends of the barrel will intensify,’ Amin Nasser, chief executive of Saudi Aramco, said… ‘While the squeeze on crude is serious, refined fuel prices have risen even more sharply.’”
October 6 – Financial Times (Alice Hancock): “Oil tanker captains in the Gulf are being paid rates equivalent to $100,000 a month for travelling through the Strait of Hormuz, along with a $50,000 bonus for each trip, as Iran steps up its assaults on vessels. Shipowners were offering the bumper ‘danger money’ to persuade seafarers to stay on vessels as Gulf countries try to keep crude flowing through the crucial strait, according to three people close to tanker owners... Regular sailors, whose normal monthly salaries can start as low as $1,500, and their captains, whose regular pay is about $15,000 a month, receive double pay while they are in the southern Red Sea and Gulf of Oman.”
October 7 – Bloomberg (Alaric Nightingale): “The price of hiring supertankers to transport oil surged to a fresh high, adding huge costs to the petroleum supply chain. It now costs $77 million to hire a very large crude carrier to move US oil to Asia, according to… the Baltic Exchange in London… The average in 2025 was $9.2 million.”
October 3 – Bloomberg (Matthew Brockett): “Australian Treasurer Jim Chalmers said the US war with Iran has been an economic disaster, blaming the conflict for higher inflation and borrowing costs worldwide and warning it’s also damping global growth. ‘Whatever the reasons were for going in, from an economic point of view the war in the Middle East has been a disaster,’ Chalmers told… ABC News... ‘It’s been disastrous from a cost-of-living point of view, for Australians and indeed for people right around the world. The war in the Middle East is putting very substantial upward pressure on inflation. That’s why we’re seeing interest rates go up around the world.’”
October 5 – Wall Street Journal (Kimberley Kao): “Disruptions to a vital shipping route in the Middle East have created an energy shock. Now, a global food security crisis is brewing, warns the secretary-general of the International Chamber of Commerce. The monthslong conflict between Iran and the U.S. has curbed the flow of goods through the Strait of Hormuz, a waterway many countries rely on for imports of critical inputs like fertilizers and natural gas. Focus has been on the resulting rise in oil prices, but it is potential food shortages the world should be paying attention to, said ICC secretary-general John Denton. ‘People see this fundamentally through the prism of the battle between U.S. and Iran which is in a way theatrical, it is so overpowering,’ Denton said. ‘The story which is the killer… is the fertilizer story.’”
Trump Administration Watch
October 9 – Bloomberg (Catherine Lucey, Jennifer A. Dlouhy and Will Kubzansky): “President Donald Trump is working with Vladimir Putin to release Russian diesel supplies into global markets, a move that upends years of sanctions as the White House seeks ways to tame soaring fuel prices ahead of the US midterm election. Trump announced Friday a series of cargoes beginning this month totaling about 13.5 million barrels, initially. The Kremlin published a statement citing Putin who said Russia was ready ‘to supply oil and petroleum products to the US and global markets.’ The US Treasury also issued a waiver for previously sanctioned Russian fuel. ‘That is massive amounts of oil coming into our country, and I want to thank President Putin,’ Trump said to reporters… ‘And it’s diesel, which is what we want.’”
October 8 – Axios (Barak Ravid): “President Trump said… the U.S. will not attack Iran ahead of the Nov. 3 midterm elections. Trump had been considering for several days the possibility of resuming major combat operations against Iran ahead of the midterms. If major combat operations resume, they’re expected to include large-scale strikes on Iranian energy facilities, infrastructure and nuclear targets, sources say. Resuming the war in the next three to four weeks could influence the midterms, in part because oil prices might rise in response. It could also influence Israel’s elections, which are scheduled for Oct. 27.”
October 5 – Bloomberg (Saleha Mohsin): “In his 20 months on the job, Treasury Secretary Scott Bessent has made a habit of putting his economic predictions on the record. The housing market, he said in February 2025, will ‘unfreeze’ within weeks, and inflation could return ‘quickly’ to the Federal Reserve’s 2% target. In April, he offered a forecast that spoke directly to the pocketbook concerns of many Americans: ‘I’m optimistic that sometime between June 20 and Sept. 20 that we can have $3 gas again.’ He’s made similarly rosy projections for economic growth, budget deficits and more. Most of those forecasts have been off the mark… ‘It has hurt his credibility, there’s no question about it,’ says Douglas Holtz-Eakin, president of the American Action Forum, a right-leaning think tank... ‘That’s not good for the Treasury.’”
October 3 – Bloomberg (Se Young Lee): “Treasury Secretary Scott Bessent said the recent rise in US Treasury yields was in line with global trends and didn’t warrant consternation, even as worries about persisting price pressures pushed some benchmark rates to their highest in more than two decades. ‘I would be concerned if we were having some kind of idiosyncratic rise,’ Bessent said... ‘We’re not seeing people selling treasuries to buy German bonds or Japanese bonds.’ ‘I can’t control the bond market. What I can do is get people to slow down and think,’ he said. Bessent also touted the US financial intervention to rescue Argentina and left the door open to similar rescues in the future.”
October 4 – New York Times (Alan Rappeport): “Treasury Secretary Scott Bessent defended his assertion that he is ‘the house’ when it comes to overseeing America’s bond market, but acknowledged that investors who bet against him might win a few hands… Since daring bond investors to bet against him in September, bond yields… have continued to rise to multiyear highs. ‘The house doesn’t win every hand, the house plays the percentages,’ Mr. Bessent told Axios. ‘Everyone in the market knows, you don’t win every hand, you win over time.’”
October 4 – Bloomberg (María Paula Mijares Torres): “President Donald Trump’s chief economic adviser called on former Federal Reserve Chair Jerome Powell to leave the central bank’s board after an internal report cited management failures in the renovation of its headquarters. ‘I think that it’s time for him to move on and to respect the independence of the Fed,’ Kevin Hassett, head of the National Economic Council at the White House, said on Fox News…”
October 8 – Reuters (Steve Holland and Akash Sriram): “The Trump administration froze… some green-card filings by Microsoft, Adobe and major IT outsourcers and opened probes into nine elite universities, widening a visa crackdown it says targets fraud and American job losses. The twin actions mark the broadest strike yet against skilled-worker immigration programs, potentially blocking a common path to permanent residency for thousands of foreign tech workers while putting some of the country’s most prominent research universities on notice.”
October 6 – Wall Street Journal (Santiago Pérez): “President Claudia Sheinbaum began her workday at dawn last week by grilling Mexico’s top security and intelligence officials. She wasn’t happy… Sheinbaum confronted some of her most trusted aides over their plans to freeze the local bank accounts of former Mexican officials linked to a state governor from Sheinbaum’s ruling party. The U.S. Treasury was about to target those former officials with sanctions for allegedly accepting bribes to protect the Sinaloa cartel’s drug-smuggling operations… To Sheinbaum, her security chiefs were going beyond the close cooperation with American law enforcement that has been the hallmark of her two-year tenure by taking for granted that the U.S. had solid evidence linking the former officials to drug cartels… She was unusually harsh with Security Minister Omar García Harfuch, a confidant who has guided her policies throughout her political career, the people said. Sheinbaum said that the U.S. measures were part of an effort to destabilize Mexico and her government, they added.”
Trade War Watch
October 4 – CNBC (Jenny Lee): “U.S. President Donald Trump said he ‘didn’t jump the gun’ in announcing South Korea’s participation in a $50 billion Alaska liquefied natural gas project, warning Seoul could pay ‘double’ if it does not sign on soon. His remarks come amid a discrepancy between Washington and Seoul over South Korea’s planned energy and infrastructure investments in the U.S., with Trump announcing projects that Seoul has said are not yet finalized. ‘If they don’t want to do it, that’s OK with me. I’ll just charge them more,’ Trump told reporters… ‘Tell them if they don’t sign shortly, I’m going to double it up.’”
October 5 – Wall Street Journal (Bertrand Benoit and Kim Mackrael): “Germany and France are proposing a new weapon for Europe to fight back against a flood of cheap Chinese imports, setting the stage for a confrontation with Beijing. The countries, ahead of a European Union leaders’ summit next week, are proposing that the bloc lower its bar for blocking Chinese products and allow the bloc to move faster on such actions. With this new power, the EU could potentially bar Beijing from one of its last major high-income markets in the world within days of the decision being taken. The move is a high-stakes gambit ahead of a meeting between EU and Chinese trade officials this week aimed at strengthening Europe’s hand in negotiations.”
October 7 – New York Times (Keith Bradsher): “The European Union and China are heading toward a trade showdown. Europe’s trade negotiators are meeting with Chinese officials on Thursday and Friday in Beijing. A week later, Europe’s presidents and prime ministers will gather in Brussels to discuss industrial competitiveness with China, among other agenda items. Their concern is urgent. The region’s trade deficit with China is running at 1 billion euros ($1.1bn) per day. European officials blame an undervalued Chinese currency and Beijing’s state-controlled banking system, which has supplied vast amounts of cheap credit to build export-focused factories.”
Constitution Watch
October 9 – New York Times (Colby Smith and Tony Romm): “President Trump said the White House would investigate unsubstantiated claims that Lisa D. Cook committed mortgage fraud and hold a hearing next month. President Trump said… the White House had formed a committee to investigate Lisa D. Cook, a Federal Reserve governor, and would hold a hearing to consider whether to fire her over unproven accusations that she committed mortgage fraud.”
October 8 – Washington Post (Perry Stein and Salvador Rizzo): “The Justice Department presented evidence to a federal grand jury this week in a case against Cassidy Hutchinson, a former White House aide who was a key witness for a congressional committee investigating the Jan. 6, 2021, attack on the U.S. Capitol, according to two people familiar... Federal officials have accused Hutchinson of lying to lawmakers when she testified about the events surrounding the Capitol attack, said the two people, who spoke on the condition of anonymity to discuss an ongoing investigation.”
Budget Watch
October 8 – Wall Street Journal (Richard Rubin): “The U.S. budget deficit climbed to nearly $2 trillion in the fiscal year that ended Sept. 30, according to the Congressional Budget Office, deepening the federal government’s persistent red-ink trend. The $1.993 trillion deficit was 12% above the 2025 level in nominal dollars, reaching the highest level since 2021. The U.S. spent $7.4 trillion last year, up 6%, and it collected $5.4 trillion in revenue, up 3%.”
October 8 – Bloomberg (Yash Roy): “Congressional Budget Office Director Phillip Swagel warned the idea of embracing faster economic growth as the solution for reining in the US federal debt — one being championed by Treasury Secretary Scott Bessent — is unlikely to work. ‘Growth will help, but it’s probably not plausible that growth alone will stabilize our fiscal trajectory,’ Swagel said… Swagel… said the CBO is set to upgrade its growth forecast in its next set of projections, in January or February… But ‘the deficit is so wide that that alone won’t take care of it,’ he said…”
U.S./Russia/China/Europe/Iran Watch
October 3 – Reuters (Andreas Rinke and Felix Hoske): “Germany will not be intimidated into dropping its support for Ukraine, Chancellor Friedrich Merz said… as he announced a further €1 billion ($1.1bn) in military aid during a visit to Kyiv marked by Russian drone attacks. Air-raid sirens and explosions rang out repeatedly across the Ukrainian capital as Merz and Ukrainian President Volodymyr Zelenskiy visited a memorial to soldiers killed during the four-year-old war, as well as the Academy of Sciences, where at least two people died in a drone strike last week.”
October 5 – Politico (James Angelos): “Germany’s foreign intelligence chief warned… of the rising risk of a direct clash with Russia as the Kremlin escalates its ‘shadow war’ on Berlin and hits Ukraine with increasing brutality. ‘Germany is in danger of being drawn into a violent conflict with Russia,’ Martin Jäger, the head of the German’s foreign intelligence agency, or BND, told parliamentarians… ‘Germany has become a major obstacle to Russia’s hegemonic power projection in Europe and, as a result, a primary target of Russian actions.’”
October 5 – Financial Times (Sam Jones): “Russia’s ‘shadow war’ against Europe has entered a new and more dangerous phase, Germany’s intelligence chiefs have warned, with Moscow plotting attacks on Nato territory on a scale not seen since the full-scale invasion of Ukraine. Germany’s three intelligence services on Monday briefed parliament on the Kremlin’s escalation… The German spy chiefs confirmed the recent claim by Ukraine President Volodymyr Zelenskyy that the Russian president has ordered his military and spy agencies to level Ukraine’s economy and ability to defend itself this winter.”
Ukraine War Watch
October 4 – Reuters (Daniel Flynn and Olena Harmash): “Ukraine will double down on attacking Russian oil refineries in response to a new policy of airstrikes by Moscow designed to force people to abandon Kyiv and other cities, but will not target civilians, President Volodymyr Zelenskiy said. Ukraine’s intelligence services has obtained documents showing that Russian leader Vladimir Putin had issued a ‘new doctrine’ of military attacks on a much broader range of civilian targets ahead of this winter, Zelenskiy said.”
October 5 – Bloomberg (Slav Okov): “Attacks on commercial vessels off the Black Sea’s western coast are on the rise, threatening already-choked trade flows in the region while testing NATO’s readiness to react. Two general cargo ships were hit by air and naval drones overnight in the exclusive economic zone of Bulgaria… A commercial vessel loaded with rapeseed oil was also damaged by a Russian drone strike that killed one person on Tuesday, Odesa regional governor Oleh Kiper said…”
Taiwan Watch
October 6 – Reuters (Joyce Lee): “North Korea criticised the United States over its arms sales and military support for Taiwan, accusing Washington of fuelling tension in the Taiwan Strait, state news agency KCNA said… A KCNA commentary citing North Korean international affairs analyst Kim Myong Chol said US policy on Taiwan was undermining peace and stability in the region and condemned the appearance of US-sold fighter aircraft in Taiwan.”
AI Bubble/Arms Race Watch
October 8 – Bloomberg (Chris Bryant): “Amid heated discussion of the astonishing (and also rather worrying) capabilities of artificial intelligence, investors are realizing that the underlying computing and energy infrastructure relied upon by OpenAI, Anthropic PBC and their ilk is much harder to construct than a chatbot prompt. Data-center projects are encountering a cornucopia of holdups, from equipment and labor shortages to local-community opposition, construction moratoria and permit delays. Moreover, protracted grid-connection timelines and lagging production of gas turbines could mean there’s not enough power to run all the electricity-hungry server farms the tech industry wants to build. Considering that a single gigawatt of computing capacity can cost tens of billions of dollars,money managers need to pay attention to the financial consequences of these gargantuan projects falling behind schedule, or never coming online at all. That could mean a hit to developers and would-be tenants, of course, but also to semiconductor shipments.”
October 8 – Financial Times (George Hammond and Stephen Morris): “OpenAI’s annualised revenue is about $20bn less than the company has previously signalled, according to financial documents shared with investors, a massive gap likely to damp optimism about the growth of AI demand. The company has recently told investors its revenues were approaching $50bn on an annualised basis at the end of September, far short of the $70bn reported by the FT and other media outlets late last month based on information that was provided to investors.”
October 3 – Axios (Sam Sabin): “AI agents don’t need to invent new ways to hack the internet to overwhelm its defenses. They just need to speed-run the ones humans already use. Agents are proving they can automate basic hacking techniques at a speed and scale that is turning the internet’s long-standing security gaps into easy targets. OpenAI said… it had notified more than 100 organizations that its agents may have accessed their systems during pre-deployment testing. Researchers at Transluce and Corridor also found a new batch of incidents last week where AI agents targeted government websites, including those of the U.S. and Canada.”
October 6 – Bloomberg (Hannah Levitt and Tom Mackenzie): “Anthropic PBC’s Mythos artificial-intelligence model has dramatically increased global cybersecurity risks, JPMorgan… CEO Jamie Dimon said. Risks from AI ‘went up 10-fold after Mythos,’ Dimon said… ‘AI created vulnerabilities that we didn’t know about, and we always worried about cyber before these things.’”
October 4 – Financial Times (Stephen Morris and George Hammond): “A spiralling legal crisis threatens to engulf OpenAI after its AI agents hacked dozens of companies and governments worldwide, with the prospect of a barrage of lawsuits marking the latest test of Sam Altman’s leadership. Staff at OpenAI, alongside senior legal, tech and policy figures, told the FT that the company has been left open to legal damages and government actions after cyber security breaches involving its AI agents were revealed around the world. The past week has seen new legal actions and regulatory probes launched against OpenAI almost daily, from California to Australia, with more expected to follow…”
October 8 – Bloomberg (Anthony Hughes): “Investors considering Anthropic PBC’s planned mega-IPO are grappling with an unusual conundrum: How to value a company that some fear could help wipe out the human race… While observers scoffed at the idea that a company could be held liable for killing off the species — or even quantify it in an initial public offering disclosure — the risks to Anthropic and its rival OpenAI resemble those faced by companies handling hazardous materials or military hardware.”
October 4 – Bloomberg (Saritha Rai): “American AI companies' performance lead over China narrowed sharply in past months to a record low after labs such as DeepSeek gained ground, threatening US tech supremacy, according to Bloomberg Intelligence. Top Chinese models lag their US rivals by just 3% on benchmark scores after the September release of DeepSeek’s V4.1 Flash, BI senior analyst Robert Lea wrote... That’s down from about 9% in May and 15% earlier in the year.”
October 4 – Axios (Bradley Olson): “A closely watched Nvidia-backed startup called Reflection is preparing to shake up the AI race with a powerful open-weight system that could threaten Chinese upstarts and U.S. AI giants alike. The marriage of an American open-weight model and Nvidia GPUs would give individuals and companies a new, cheaper alternative to Anthropic, OpenAI and Google. Open models, designed to compete with Chinese rivals, can be harder to monitor and regulate than the Big Three so-called frontier models.”
October 6 – Wall Street Journal (Sooyoung Rhee and Raffaele Huang): “Hackers used a Chinese artificial-intelligence agent to attack South Korea’s biggest banks and steal the personal information of 68,000 people, officials said, marking one of the first such AI-powered intrusions into the global financial system. Investigators in Seoul said the attacks, initially detected last week, hit at least seven South Korean financial firms and showed traces of a cybersecurity tool called Artex AI that was developed in China.”
October 4 – Financial Times (Antoine Gara and Ryan McMorrow): “SoftBank’s $4bn acquisition of DigitalBridge will give Masayoshi Son a new way to bring outside investors into his vast AI ambitions, as the billionaire seeks to build infrastructure projects too large to finance from his conglomerate’s balance sheet alone. Marc Ganzi, chief executive of the $100bn-plus digital infrastructure manager, said DigitalBridge would become SoftBank’s ‘third-party infrastructure arm’, raising money from institutional investors to finance data centres, power and other projects. ‘As the zeros keep growing in terms of Masa’s ambition, he’s not going to be able to do it all off the SoftBank balance sheet,’ Ganzi told the FT…”
October 7 – Bloomberg (Alicia Clanton): “San Francisco… is temporarily banning new data centers within its borders. The city’s Board of Supervisors unanimously approved a 45-day moratorium Tuesday, joining a growing national backlash against the facilities underpinning the AI boom. The pause, which took effect immediately, can be extended for roughly two years, as officials consider more permanent restrictions.”
October 6 – Bloomberg (David Ramli and Rthvika Suvarna): “Billionaire Ray Dalio warned that artificial intelligence is a ‘classic bubble’ that is nearing a bursting point thanks to rising interest rates and the need to turn wealth into cash… Dalio said that a huge amount of debt is being taken out to fund AI. As rates continue to climb, that is a point at which the bubble begins to pop. ‘We’re in the part of the cycle that is before that but approaching that,’ the Bridgewater founder said. ‘I think we’re close to that.’”
Global Bubble Watch
October 6 – Reuters (Manya Saini and Saeed Azhar): “Profits for the US securities industry totaled $45.9 billion in the first half of the year, putting it on track for a new annual record, according to… New York State Comptroller Thomas DiNapoli. A revival in dealmaking, strong trading revenue fueled by market volatility, resilient loan growth and a resurgent IPO market have boosted nearly every major Wall Street business this year. Securities profits soared to a record $65.1 billion in 2025, up more than 30% from the prior year… Profits in the first half of 2026 surged 51.3% from a year ago. If they keep up the same pace, profits could exceed $90 billion for 2026. ‘This figure would also outpace even inflation-adjusted record levels in 2009,’ the report said…”
October 6 – Bloomberg (Todd Gillespie): “A blockbuster year for New York’s trading and investment-banking firms is poised to deliver record earnings for the industry, with profit on pace to exceed $90 billion, and bonuses expected to reach an all-time high… A strong year for Wall Street translates into a boon for New York City and its job market. Employment in the industry reached 207,400 jobs in 2025, and the comptroller’s office expects that 5,300 more jobs will be added this year. It’s also lucrative for the state’s coffers. The securities industry, through business and personal income taxes, added at least $26.3 billion to the New York state budget for fiscal 2025-'26, up nearly 29% from a year earlier.”
October 5 – Bloomberg (Dylan Sloan and Jack Witzig): “If 2026 feels like a banner year for the world’s tech billionaires, the numbers bear it out. The roughly 100 technology fortunes among the world’s 500 richest people gained a combined $845 billion through Sept. 30, the most ever for the first nine months of a year, according to the Bloomberg Billionaires Index.”
October 8 – Bloomberg (Sridhar Natarajan and Todd Gillespie): “Goldman Sachs Group Inc.’s most senior leaders are set to unlock a special bonus that will rank among the biggest such payouts the firm has ever awarded. About 20 executives are in line for equity awards that will be finalized later this month and exceed $500 million at the current share price…”
Inflation Watch
October 6 – Bloomberg (Jorgelina do Rosario): “Global governments must act urgently to address challenges from an unbalanced AI boom, a prolonged energy shock and record debt piles, the International Monetary Fund said as it prepares to host economy chiefs from around the world next week… ‘The AI building boom is inflationary. The energy and food shocks are inflationary. Tariffs, defense spending, and high public debt can be inflationary,’ Georgieva said. She called for a ‘prudently hawkish bias’ on the part of central banks, and said countries that have gotten used to running large budget deficits are in for "some very tough political choices.’”
October 7 – Reuters (Michael S. Derby): “The public’s near-term expected path for inflation jumped in September to its highest level in over three years as households downgraded both their current and future financial outlooks, the Federal Reserve Bank of New York said… Respondents to the bank’s latest Survey of Consumer Expectations said that they project inflation a year from now to hit 3.9%, the highest level since May 2023, from August’s forecast of 3.6%. Inflation three years from now is seen at 3.3% versus 3.2% in August, while expected inflation five years from now held steady at 3%.”
October 6 – Axios (Brian Sozzi): “It’s not just diesel. The Trump administration’s regulatory clampdown on truckers is adding to surging transportation costs. Trucking is a major way that price shocks get transmitted through the economy. And limits on available drivers could amplify the impact of the spike in fuel costs, with diesel now averaging $6.32 a gallon — up over 70% from last year. The ‘prices paid’ component of the September services reading from the Institute for Supply Management released Monday registered another sizzling reading (74), indicating still-building price pressure in the system. That’s the highest reading on prices since July 2022 amid the post-COVID inflation.”
October 6 – Axios (Josephine Walker): “Americans could pay far more to heat their homes with oil this winter than last, a new analysis reviewed by Axios shows… Families that heat with oil could pay about 50% more this winter than last, according to estimates from the National Energy Assistance Directors Association (NEADA), up from its 31.3% projection in mid-September. The average cost of heating a home with oil is expected to rise by about $878, costing over $2,600 this winter.”
October 8 – CNBC (Alex Harring): “The cost of many everyday items would have declined last year and early this year without President Donald Trump’s tariffs, according to the New York Federal Reserve. The cost of 67 categories of goods was 2.9 percentage points higher as of February thanks to tariffs, according to a paper from a team of researchers at the central bank’s New York arm. Without the levies, the team found that prices for the products they studied would have pulled back by almost 1%.”
October 6 – Bloomberg (Leslie Kaufman): “Water is becoming less affordable for American families as aging infrastructure, pollution rules and climate change push household bills higher — with the artificial intelligence boom adding new pressure on some local water systems. US household drinking-water bills rose about 62% over the past decade, according to… Food & Water Watch, an environmental advocacy group. That increase compares with a roughly 39% jump in overall consumer prices and a 30% rise in grocery prices over roughly the same period…”
Federal Reserve Watch
October 6 – Axios (Courtenay Brown and Neil Irwin): “Some companies are preparing for an AI-fueled chip squeeze that could push up prices far beyond the data center boom alone, Mary Daly, president of the Federal Reserve Bank of San Francisco, tells Axios. The Fed can usually look through supply shocks that come and go. Daly’s concern is that AI, tariffs and higher energy costs could last longer than expected or compound each other — keeping inflation elevated and requiring more tightening. Daly says AI demand could spread beyond high-end chips before supply catches up, extending the shock beyond the period the Fed would normally expect to look through. ‘I see it less as a one-off,’ she says, referring to AI-driven pressure on chip and other technology prices. Daly says the Fed typically thinks in terms of shocks fading within one to three years. ‘This is probably further out before we get relief.’ ‘It doesn’t seem like the demand for AI is going down. If anything, it seems like it’s going up.’”
October 5 – New York Times (Colby Smith and Ben Casselman): “The Federal Reserve has a conundrum on its hands as it tries to tame elevated inflation. One of the primary drivers of today’s growth, and the price pressures that have followed in its wake, appears nearly immune to the higher interest rates that the central bank has begun to impose on the economy. Companies’ seeking to expand their artificial intelligence abilities have been undeterred by not only U.S. borrowing costs that have recently reached multidecade highs, but also soaring costs for electricity, high bandwidth memory and other inputs that are crucial to continued growth. The implications for the Fed are vast, if price pressures do not ease as many policymakers expect in the coming months. To return inflation to the Fed’s 2% target, the central bank might need to tighten the screws on the economy more than otherwise would be the case to sufficiently slow down activity.”
October 7 – New York Times (Colby Smith): “Federal Reserve officials overwhelmingly concluded that they had more work to do to quell inflation after raising interest rates at their September meeting, according to minutes from the meeting… Many officials assessed that higher rates would be ‘prudent on risk-management grounds, providing insurance against inflation remaining persistently above target due to stronger-than-expected demand or further adverse supply shocks.’ Others suggested that raising rates was necessary based solely on the current outlook for price pressures. Some also suggested that raising rates would guard against the public’s losing confidence that inflation, which has overshot the Fed’s 2% target for nearly six years, would eventually ease.”
October 8 – Reuters (Howard Schneider): “US Federal Reserve Governor Christopher Waller said… additional rate hikes will likely be needed to lower inflation to the Fed’s 2% target, but added there was ‘flexibility’ about the pace of increases and left the door open for a pause at the Fed’s upcoming October meeting. ‘If the economic data continue to come in as expected, I anticipate additional hikes to support a timelier return of inflation to our 2% goal… But there is some flexibility about when those hikes will occur. The hikes do not need to come at consecutive meetings, but they should be in place in an acceptable period of time.’”
U.S. Economic Bubble Watch
October 6 – Reuters (Lucia Mutikani): “The US trade deficit widened more than expected in August as imports jumped to a record high against the backdrop of robust domestic demand… The nation posted record goods trade deficits with at least three countries, including Mexico… The trade shortfall increased 13.7% to $105.6 billion, the largest since March 2025… Imports increased 4.3% to an all-time high of $420.8 billion in August. Goods imports jumped 5.3% to $342.2 billion, partly due to businesses replenishing inventories… Capital goods imports soared $6.2 billion to a record high $146.4 billion, driven by semiconductors and other industrial machinery, reflecting the AI infrastructure buildout… Exports rose 1.4% to $315.2 billion. Goods exports increased 2.2% to $205.7 billion…”
October 8 – Associated Press (Christopher Rugaber): “The number of people applying for U.S. unemployment benefits fell slightly last week as layoffs remain low and most American workers enjoy job security… Initial jobless claims ticked down to 197,000 from a revised 199,000 the week before… The report suggests that most companies are confident enough in the economy and their sales to hold onto their workers. At the same time, hiring has been sluggish, resulting in a ‘low-hire, low-fire’ job market.”
October 5 – Reuters (Lucia Mutikani): “US services sector activity slowed in September, with strong domestic demand stretching supply chains and raising prices paid by businesses for inputs, indicating that inflation could remain high into next year. The Institute for Supply Management said… its nonmanufacturing Purchasing Managers' Index fell to 54.9 last month from 55.4 in August… The survey’s measure of prices paid by businesses for inputs jumped to 74.0 from 72.6 in August. It mirrored a similar increase in the ISM’s manufacturing survey. Combined, the two surveys pointed to higher inflation down the road…”
October 7 – CNBC (Diana Olick): “Mortgage rates last week rose to the highest level in nearly three years. That kept demand for both refinances and home purchases on their steep and steady decline… Applications to refinance a home loan, which are highly rate-dependent, dropped 8% for the week and were 56% lower than the same week one year ago… Applications for a mortgage to purchase a home declined 2% for the week and were 15% lower than the same week one year ago.”
October 7 – Bloomberg (Julia Fanzeres): “US consumer borrowing rose in August by less than forecast, restrained by the biggest decline in revolving credit in nearly two years. Total credit outstanding rose $8.3 billion, the least in three months, after a revised $17.7 billion increase in July… Credit-card and other revolving debt outstanding declined $4.8 billion… Non-revolving credit, such as loans for vehicle purchases and school tuition, increased $13.1 billion in August. Auto sales in August advanced to the fastest pace since April of last year…”
October 6 – Reuters (Alessandro Parodi and Danielle Kaye): “US credit card spending on luxury brands fell for a third consecutive month in September, retail lender Citi said…, signalling further weakness in the industry’s biggest market as the US heads into the November 3 midterm elections… While continued wealth growth among affluent consumers supported the top-end of the market in September, overall US luxury credit card purchases fell 6% from a year earlier, after declining 4% in both July and August, Citi analysts said…”
October 6 – CNBC (Sarah Agostino): “More car buyers are stretching out their loans in an effort to make the purchase affordable. Even so, monthly payments keep rising. A record 25.5% of financed new-vehicle purchases in the third quarter had loan terms of 84 months or longer, up from 21.8% a year earlier, according to… Edmunds... The average monthly payment over that same period reached a record $787, up from $756 a year earlier… Monthly payments are rising because buyers are borrowing significantly more money overall,’ said Joseph Yoon, consumer insights analyst at Edmunds. The average amount financed for a new vehicle reached a record $44,664 in the third quarter, up from $42,744 a year ago…”
October 8 – Associated Press (Alex Veiga): “Mortgage rates marched higher for the seventh week in a row, driving the average long-term U.S. home loan rate to its highest level in nearly three years. The benchmark 30-year fixed-rate mortgage climbed to 7.40% from 7.28% last week… One year ago, the average rate was 6.30%.”
China Watch
October 4 – Financial Times (Thomas Hale and William Sandlund): “China has reduced the total number of banks by nearly a quarter as part of a drive to strengthen oversight of smaller lenders at a time of slower economic momentum. Regional consolidation within China’s vast state-controlled banking system, with some $64tn in overall assets, comes amid signs of sluggish demand for credit in the world’s second-largest economy. There were more than 670 closures of banking entities last year — a record high… Almost all were in rural areas.”
Central Banker Watch
October 5 – Reuters (Marc Jones): “Central banks will remain at the heart of managing future financial crises, but rising public debt and other key changes could make their task more difficult and controversial, the head of the Bank for International Settlements (BIS) said… Pablo Hernández de Cos - one of the frontrunners to take over from Christine Lagarde as European Central Bank President next year, said the run of crises over the last 20 years had demonstrated the importance of swift central bank action in quelling market turmoil. However, he said the backdrop for the next crisis was changing rapidly. Public debt levels are near post-World War Two highs in many economies, while budget deficits remain large and fiscal pressures are expected to persist. That could make it harder for central banks to distinguish between market dysfunction requiring intervention and legitimate investor concerns over government finances. ‘If market dysfunction threatens financial stability or monetary transmission, central banks need to intervene,’ Hernández de Cos said. ‘But when debt is high and public financing needs are large, even a well-designed operation can be interpreted through a fiscal lens’.”
October 7 – Financial Times (Sarah White): “France’s central bank chief has hit out at what he called ‘Trump-style’ threats against him from far-left presidential candidate Jean-Luc Mélenchon, as he also ruled out any need for the European Central Bank to intervene now to help ease a French bond rout. France’s rising borrowing costs and its struggle to clean up its public finances have become a growing focus of presidential election campaigns ahead of the vote next spring, with candidates increasingly fighting over how best to tackle the problem or coming up with radical solutions. Earlier this week, leftist contender Mélenchon, of La France Insoumise (France Unbowed), took aim at Emmanuel Moulin, saying on X he had committed an ‘act of treason’ and should be prosecuted after what he described as the central bank chief’s implicit meddling in politics and scaremongering.”
October 5 – Financial Times (Leila Abboud and Sarah White): “The head of the French central bank has warned that the country risks being ‘strangled by interest rates’ if it does not act to clean up its public finances. Emmanuel Moulin, the governor of the Banque de France, told the FT that the Eurozone’s second-largest economy could win back investor confidence despite the ‘serious and worrying’ moves on sovereign debt markets in recent days. ‘France is not Greece during the Eurozone crisis,’ Moulin said. ‘If it can pass a budget this year to reduce spending and narrow the deficit as the government has proposed, then markets will be reassured by this concrete step of fiscal consolidation.’ ‘If we don’t act, there is indeed a risk of being gradually strangled by rising interest rates,’ he added. ‘We have to remain masters of our own destiny.’”
October 5 – Financial Times (Lorenzo Bini Smaghi): “Long-term rates have been rising sharply over the past few months in most advanced economies. This has triggered concern in financial markets, especially among bondholders, and pushed yields even higher, creating a vicious circle. In Europe, the shadows of the 2011-12 crisis are emerging again. One of the clearest signs is the widening of spreads between the government bonds of core and peripheral countries, with France being treated by markets as part of the periphery this time. In many ways, the European economy is in a very different position today. The European Central Bank is much better equipped to address tensions in financial markets that could endanger the integrity of the single currency. It has bond-buying tools and programmes that address spikes in yields. However, one aspect that is more difficult to understand for observers and market participants is why, in the current stress, the ECB continues to implement its policy of quantitative tightening, the shrinking of its balance sheet by not replacing assets — in particular government bonds — when they mature.”
Europe/UK Watch
October 6 – Bloomberg (Mihir Sharma): “A specter is haunting Europe: the threat of bond-market contagion. France’s fiscal failures are the source, and now even countries that were supposedly improving their finances are in danger. Italy, for one, has managed to cut its fiscal deficit, but its macroeconomic recovery is very sensitive to rising yields on its sovereign debt — and hence its borrowing costs. Years of fiscal mismanagement will cause its debt to hit 139% of gross domestic product this year. Trouble is brewing beyond the euro zone as well. Romania, going through another bout of political turmoil after failing to install a government on Sept. 30, has yields of about 7.3%.”
October 6 – CNBC (Chloe Taylor and Jenni Reid): “Mass student riots are escalating across France, with the violent clashes leading to arson, severe injuries and thousands of arrests. Protests erupted late last month in Paris, spreading into a nationwide movement that has seen students blockade schools and take to the streets to voice their discontent with teacher shortages, long days and dilapidated school buildings. Hundreds of schools have remained shuttered across the country as the rallies drag on.”
October 5 – Reuters (Indradip Ghosh): “Euro zone business activity expanded at its fastest pace in nearly 3-1/2 years in September as demand remained strong despite inflation worries stemming from the Middle East war… Inflation in the bloc jumped more than expected to 3.8% last month from 3.2% in August on soaring energy costs, raising the risk the European Central Bank will lift interest rates to a higher-than-expected level… The S&P Global Eurozone Services PMI rose to a 10-month high of 53.0 in September from August’s 51.6…”
October 2 – Financial Times (Paola Tamma, Amy Kazmin and Eleni Varvitsioti): “Italy and Greece have asked Brussels for more fiscal wriggle room as surging fuel prices and rising inflation add to budgetary pressure on the bloc’s two most indebted countries ahead of elections next year. Italian Premier Giorgia Meloni and Greek Prime Minister Kyriakos Mitsotakis each wrote to the European Commission this week to plead for further room to manoeuvre under the EU’s fiscal rules, which are meant to limit a country’s annual deficit to 3% of GDP.”
October 8 – Financial Times (Olaf Storbeck): “Germany’s economy is heading for its fastest growth in four years as exports and government debt-funded spending help end years of stagnation, according to the latest official forecasts. Europe’s largest economy is now expected to expand by 1.3% this year, more than twice the 0.5% growth projected by the government in April. For 2027, Berlin now expects a GDP increase of 1.1%.”
Japan Watch
October 4 – Reuters (Leika Kihara): “Japanese Prime Minister Sanae Takaichi… pledged to ‘control’ bond issuance and act swiftly against market turbulence, seeking to reassure investors worried about Japan’s worsening public finances that have pushed up bond yields. She said the government would pursue fiscal sustainability even as it ramps up spending to bolster growth potential, including by reviewing existing tax breaks and subsidies.”
October 6 – Reuters (Leika Kihara): “The Bank of Japan’s new policymaker Ayano Sato said she supports the idea of raising interest rates in several stages…, highlighting awareness even among dovish board members of the need to combat inflation risks. Appointed by Prime Minister Sanae Takaichi, who favours looser monetary policy, Sato was one of two dissenters to the BOJ's decision to raise interest rates in September.”
October 4 – Reuters (Leika Kihara and Takahiko Wada): “Japan no longer needs expansionary fiscal and monetary policies aimed at boosting demand, former Bank of Japan board member Asahi Noguchi told Reuters, projecting another interest rate hike by the central bank in December. The remarks by Noguchi, a reflationist academic who served at the BOJ until March, highlight how years of rising inflation and wages are causing a shift in mindset among those who were once advocates of big spending and loose monetary policy.”
Emerging Markets Watch
October 7 – Reuters (Karin Strohecker): “Foreign investors pulled $26.3 billion out of emerging market stocks and bonds in September, the first monthly outflow since June…, a report by the Institute of International Finance showed… Non-resident investors pulled $7 billion from the emerging market fixed income sector last month, the first net outflows since March, when the escalating Middle East conflict roiled global markets… ‘The pressure built in the second half of the month, as hard currency bond funds turned to outflows in the week of the FOMC decision and EM dollar credit spreads widened,’ the report found.”
October 5 – Reuters (Oliver Griffin, Marcela Ayres and Gabriel Araujo): “Brazil’s main stock exchange surged to a record high on Monday as the country’s markets cheered on right-wing Senator Flavio Bolsonaro’s better-than-expected finish in the first round of Sunday’s presidential election. Brazil’s Bovespa index settled at 206,911.89 points, a new closing record, after a 7.7% jump, the largest since March 24, 2020.”
October 5 – Associated Press (Mauricio Savarese, Eleonore Hughes and Anna-Catherine Brigida): “Sen. Flávio Bolsonaro, an ally of U.S. President Donald Trump, and Brazil’s incumbent President Luiz Inácio Lula da Silva will face off in a runoff Oct. 25 for the top job of Latin America’s powerhouse economy after neither won a majority in Sunday’s vote. The country’s electoral court in Brasilia said neither the 80-year-old incumbent, seeking his fourth non-consecutive term, nor the 45-year-old son of former President Jair Bolsonaro would garner the majority vote needed for an outright win. The court had Bolsonaro with just over 56 million votes to Lula’s 53.7 million…”
October 7 – Financial Times (Krishn Kaushik): “India’s central bank has raised its key lending rate for the first time since 2023, citing accelerating inflation, higher global energy prices and the strong momentum of the world’s fastest-growing large economy. Reserve Bank of India governor Sanjay Malhotra said the central bank’s six-member monetary policy committee voted unanimously to raise rates by 0.25 percentage points to 5.5%.”
October 5 – Bloomberg (Azman Usmani and Abhishek Shanker): “Maharashtra, India’s wealthiest state, will cut water supplies to homes by at least 10% after a powerful El Niño left the country with its weakest monsoon in more than a decade. The state government has ordered local authorities, including in India’s financial capital of Mumbai, to curb water consumption from Oct. 16 and impose deeper cuts if needed to ensure supplies last through August next year…”