Today
Tech stocks are leading global markets lower this morning as investors reassess the risks around AI investment, borrowing costs and competition. Asian equities led the decline, with Japan’s Nikkei falling -4.9% and South Korea’s Kospi down -7.6%. Semiconductor stocks were hard hit, with SK Hynix and Samsung Electronics dropping -11.1% and -9.6%, respectively, while Japan’s SoftBank fell -9.3%. The selling has spread to Europe, with chip equipment maker ASML down –5%, while North American futures are mixed with U.S. equities in the red, and the TSX looking to open slightly higher. Investors are questioning whether AI infrastructure spending can generate sufficient returns to justify the investment given current borrowing costs. Adding to the pressure, Chinese memory chipmaker CXMT announced earlier this week that it had made progress in developing advanced memory technology, potentially challenging industry pricing and margins. Even record profits from TSMC, the world’s largest contract chipmaker, have done little to ease concerns. Financing risks are also drawing attention, with the spread on CoreWeave’s five-year credit default swaps (CDS) rising above 1,100 bps, meaning investors are paying more than $11 annually for every $100 of debt insured against default. Meanwhile, U.S. Treasuries are benefitting from a flight to safety despite hotter-than-expected inflation reports out yesterday (CPI) and this morning (PPI), with the 10-year yield falling 13 bps to a three-week low of 5.06% at the time of writing.
Hot! U.S. producer prices rose in September at their fastest pace in more than four years, reinforcing concerns about persistent inflation and raising expectations for further Fed rate hikes. The PPI rose 1.3% month-over-month and 6.3% year-over-year, while core PPI increased 0.7% monthly and 5% annually, suggesting that inflationary pressures are now extending beyond energy prices. Energy costs were the main driver, jumping 10.8% during the month, while transportation and warehousing prices increased 3.4% and food prices rose 1.2%, highlighting how higher fuel costs are spreading throughout the economy. Meanwhile, U.S. retail sales increased 0.8% in September, exceeding expectations for a 0.3% gain, following an upwardly revised 1.3% increase in August, although much of the strength reflected higher gasoline station receipts rather than stronger underlying consumption. Excluding automobiles and gasoline, retail sales rose a modest 0.2%, while control group sales, which feed into GDP calculations, increased just 0.1%, below expectations for a 0.3% gain, suggesting that underlying consumer demand may be waning.
Equities sold off yesterday as concerns about elevated technology valuations, financial risks surrounding AI investments, and stronger-than-expected inflation ended the S&P 500’s longest period of relative calm since January 2020. The S&P 500 declined -1.1%, snapping a 53-session streak without a daily loss of at least 1%, while the Nasdaq fell -1.9% in its worst session since July as weakness in megacap tech stocks intensified. The Russell 2000 fell -1.9% yesterday and is now down -11% from its August peak. Semiconductor stocks were hit hard, with the Philadelphia Semiconductor Index declining for a sixth consecutive session and losing nearly -12% over that period, reflecting growing skepticism about the sustainability of the AI infrastructure boom. This followed the September CPI report which showed consumer prices increasing 0.6% month-over-month, the fastest pace since April, reinforcing expectations that the Fed may need to raise interest rates further. Despite the selloff, the S&P 500 remains just -1.3% below its recent record high and the VIX is sitting near 17, suggesting broader market stress remains relatively contained.
Canada is accelerating efforts to diversify trade beyond the U.S., with Ottawa aiming to finalize a trade deal with India by year-end. The negotiations also mark a continued thaw in Canada-India relations following diplomatic tensions over the past two years. Trade negotiators have entered a fifth round of talks, and Indian Prime Minister Narendra Modi is expected to visit Canada in December, where a completed agreement could be signed. The proposed deal would deepen cooperation in energy, critical minerals, food, infrastructure, and nuclear power. Bilateral trade remains relatively modest at roughly $30 billion, but both governments have set a goal of more than doubling that figure to $70 billion over time. For Canada, the agreement would support efforts to diversify export markets and investment partnerships while strengthening ties with one of the world’s fastest-growing major economies.
The IMF is calling on the U.S., China, and Europe to address fiscal and trade imbalances as rising government bond yields increase pressure on public finances and could pose risks to global financial stability. Officials warned that the U.S. cannot rely on economic growth alone to reduce its debt and deficits, saying that spending cuts or tax adjustments will be necessary to restore fiscal sustainability. The IMF’s latest Fiscal Monitor emphasized the urgency for action, as elevated borrowing costs leave governments with less flexibility and make delayed adjustments more expensive. The group called on China to shift away from its export-dependent growth model and towards stronger domestic consumption, especially as rising shipments push its trade surplus towards new records. For Europe, there is a need for more investment to improve competitiveness, while ECB officials indicated that France must address its own fiscal challenges rather than depend on central bank intervention to contain rising borrowing costs. The IMF also highlighted financial pressures on developing economies, where debt-servicing costs have increased to an average of 14% of government revenue from 6% a decade ago.
China’s export growth rose last month, reinforcing its position as a global manufacturing powerhouse and putting the country on track to surpass its record $1.2 tln trade surplus it reached in 2025. Exports jumped 36% y/y, the fastest pace since February, while imports rose 31%, generating a record monthly trade surplus of nearly $134 bln and bringing the YTD surplus to $938 bln, which is 8% above the comparable period last year. The AI infrastructure boom has become a major driver of Chinese trade, with high-tech exports increasing 64% and accounting for close to half of overall export growth. Shipments to the U.S. rallied 40%, their strongest increase in more than five years. The strength in headline trade figures partly reflects rising prices rather than underlying volumes, with Chinese export prices up 15% annually in August and import prices rising nearly 30%, driven by higher semiconductor, energy, and commodity costs. China has also continued to successfully expand into alternative markets, recording huge export volumes to other trading partners, including Australia, the UK, South Korea, Russia, and Southeast Asia, although widening trade imbalances are generating protectionist pressures, particularly in Europe.
While it’s been a great year for the box office, not all of this year’s films have been blockbusters. Tom Cruise’s latest film, Digger, is on track to become a big Hollywood’s flop, with losses projected at approximately $245 million after a disappointing theatre release. The dark satire starring Cruise as oil magnate Digger Rockwell has generated just $35 million globally, with ticket sales falling 60% during its second weekend. Warner Bros is said to have spent close to $280 mln on production and marketing, while industry estimates suggest the film would need $350 million in worldwide revenue to break even. With Digger now expected to finish its theatre run with $50 million in global ticket sales, it may soon find its place in the Hollywood history books for a different reason, joining the ranks of major Hollywood disappointments like John Carter, The Marvels, and Cutthroat Island. The weak result is a surprise given Cruise’s recent commercial success in the Top Gun and Mission: Impossible franchises, suggesting that his star power can only do so much.
Diversion:
He should get a raise
