Stock futures are little changed ahead of the Fed’s interest rate decision, as investors balance renewed geopolitical tensions in the Middle East against expectations that policymakers will leave rates unchanged. Oil prices rebounded after Iran launched a missile attack on U.S. forces, raising concerns about potential supply disruptions and inflation, while semiconductor stocks remained under pressure following a historic selloff in South Korea. The Kospi has fallen -16% over the past two days as results from SK Hynix fueled concerns that AI-related spending may not justify current valuations, prompting heavy retail selling and government discussions on market stabilization. Despite these headwinds, the TSX reached another record high yesterday, supported by strength in domestic technology shares and a firmer Canadian dollar. Investors now turn their attention to the Fed’s policy statement and Chair Kevin Warsh’s comments for clues on the interest rate outlook, alongside earnings from major tech companies including Microsoft and Meta (after market close), which should provide further insight into the sustainability of AI-driven investment.
Power grid tipping point. Growing electricity demand from AI data centres, combined with back-to-back heat waves, is placing a huge strain on U.S. power grids and raising concerns about grid reliability during periods of peak demand. Regional grid operators are beginning to issue emergency alerts as aging transmission infrastructure struggles to keep pace with rising electricity consumption, especially in areas with heavy concentrations of data centers. While some regions, such as Texas, have expanded generation capacity through renewable energy and battery storage, others face growing investment needs to avoid any shortages. The challenges highlight just how much the AI infrastructure buildout extends beyond tech companies, and how much long-term investment in power generation, transmission, and grid modernization is needed.
The AI race is favouring large tech companies with established, cash-generating businesses that can internally fund massive investments in AI infrastructure, reducing their reliance on external financing. While firms such as Microsoft, Alphabet, Meta and Amazon can redirect cash flows from mature operations into AI spending, startups like OpenAI, Anthropic and SpaceX face more refinancing risks as rising interest rates make funding more expensive. If credit conditions tighten further, companies without meaningful operating cash flow may struggle to sustain their investment plans, while cash-rich incumbents are better positioned to continue investing and gain market share.
EM currencies have remained stable, but several currencies are becoming more and more disconnected from economic fundamentals. Strategists have argued that Poland’s zloty appears overvalued given weakening export competitiveness and large fiscal deficits, while the Korean won and Taiwanese dollar look undervalued despite strong economic growth, record current account surpluses, and the ongoing semiconductor boom. The recent stability of the Turkish lira and Argentine peso masks significant real appreciation caused by high inflation, which is slowly eroding competitiveness and increasing the risk of future policy adjustments. With this in mind, investors should prepare for eventual currency realignments rather than assuming recent trends will continue.
A potential Super El Niño could add even more pressure to already tight global commodity markets by disrupting agricultural production at the same time geopolitical tensions are restricting energy and fertilizer supplies. Severe droughts and extreme weather are expected to reduce crop yields for key commodities such as wheat, corn, sugar, and coffee, while higher oil prices and disruptions to fertilizer exports through the Strait of Hormuz could continue to increase production costs and food prices. Although North America may help offset some supply shortages due to relatively favourable growing conditions, the combination of climate-related disruptions, the war in the Middle East, and ongoing challenges in Ukraine, raises the risk of renewed commodity inflation. This has added to concerns that inflation will remain higher for longer, complicating the outlook for central banks and global financial markets.
Younger generations, facing high housing costs, are directing more and more discretionary income towards hobbies and nostalgic entertainment and away from traditional big ticket purchases like homes. One example can be seen by looking at Magic: The Gathering’s record $1.72 billion in 2025 revenue. This reflects more than just growing demand for collectibles and instead highlights how shifting economic realities are changing consumer spending. Research has found that a widening wealth gap within the millennial generation is also emerging, with those who own homes benefiting from rising home equity while others remain locked out of the housing market and instead using that money to increase discretionary spending on collectibles, toys for adults, and nostalgia-driven entertainment.
Diversion: I didn’t order the eggs, but thanks…
