Speaker 1Hey everyone, it's Friday, 23rd of October, 2026, and what a day yesterday with a tremendous sell-off, but once again, super concentrated in the AI and mega-cap names. It seems that there was quite a vibe shift from the Meta report. We noted this LAM Research negative reaction as probably not being big enough to feed into the negative space, and then we saw Meta also reporting it was touting its credibility and getting something out of its AI invest and even went so far as to be talking about issuing new shares, and the market was actually pretty neutral to slightly positive, especially relative to the rest of the market, and receiving those earnings, and then once we got to the real session yesterday, the cash session in the US, Meta sold off heavily. It seems to have been just this overall skepticism on the spend in the AI space. Not that Meta was the worst performer, but it's such a large company having such a negative day, minus 7% on the day, and right around that 200-day moving average. On the close, we're getting close to it, at least, so just an ugly look across that whole space. We had the semiconductor index down, what was it, 6.7%, so the SOX index. The S&P 500 was down minus 1.2%, and NASDAQ 100, the better part, of 3%. However, as we're seeing so many times lately, the broader market was in a different place. Is this also some active money in management here? A deleveraging in the names that have been most successful previously, and then having to offset that with squaring shorts, or just rotation, or what is this that's going on? I'm not sure I understand, but we had 332 gainers among the S&P 500 stocks yesterday. So, of course, that means with those types of losses on the main indices, that's a suggestion it's the big cap names, obviously, selling off the most. The S&P 500 equal, in fact, was up over 3%. And the Russell 2000 up a tenth of a percent on the day. Overnight, there was a little bit of a vibe shift, not a whole lot of follow-on selling. Initially, there was. The Nikkei was down something like 2% plus intraday, but managed to quite a recovery. I'm not sure if this is the closing price I noted down here, but it was back up to being down only minus about three-tenths of a percent. And it actually had an almost exact test of its 200-day moving average, the Nikkei 225, that is. Kospi also managing a slightly flat. It's a slightly positive day. And the Eurostox 50, one of the key indices we track in Europe, actually closed below its 200-day moving average yesterday and was following through that a little bit here this morning. But the other big development, and this is so critical and perhaps more interesting, I mean, if you look at where the S&P 500 is, it's stuck in this range. It's been in for quite some time. NASDAQ 100, similarly. But over in Treasury land. So in bond land, we're seeing quite a rally, a very stiff one. And in fact, that unfolded despite fresh new highs in oil prices. So, hey, we got this thing called a safe haven, and it's called Treasuries. This seems to be the message. We kind of have seen this, even though energy prices are higher, we've seen the yields rolling over. I think that's a fair assessment that at some point of oil prices, the concern more becomes one of the growth rates for global economies than this. So I think that's a fair assessment that at some point of oil prices, the concern more becomes one of the growth rates for global economies than this. Reflexive. That big sort of ramp and the acceleration we saw above 5% previously. So really a key sort of, you know, we've got a key development here, a big rejection of a major prior wave on the charts here. Okay, so let's try to step through these things in the right order here. I just want to just mention some things that I think this was definitely the most interesting development yesterday was this rally in treasuries and yields coming down to the degree they have here. Despite the. With the backdrop. It's not related to, you know, oil prices. And it is seeing a coming or unfolding, I should say, on a day where we saw this big squaring of these big risk on positions. So if we go over to other interesting, you know, side developments, which maybe are head scratchers or maybe key indicators, gold having not a nice time of it, despite this drop in yields. This is a very interesting and at odds with what many might have believed would have happened for gold if we'd seen this big. This big rally in treasuries. So we see gold actually tested below the 4,000, though. So effectively, we've sort of rejected that whole sequence of the rally that came from this sort of sub-4,000 area base. And in fact, if we're. I don't have the nominal levels in front of me, but they're not much lower than what we've seen overnight, this 3987 area. We take those out. I think that the next really big chart point is the even 3,500 level. And in silver, because of some weakness in. Copper, we've seen silver dragged below 54 and therefore through a really key low point that was the consolidation, though, previously. So it's already taken out its own low point there. I would argue 50 is the next big psychological level for silver, although there was, I think, a bigger level around 45 if we're looking at flatline levels from prior ranges. Again, a really weak look there. And, you know, you have some concerns when you've seen the accumulation of gold positions with this assumption that, you know, that the. The more gold falls, the more we should be getting long. That's what the ETF holdings are telling you. So I don't know if those positions will eventually become trades or if people will be sticky in those positions and just continue to add all the way down if that's the direction we're headed for now. Yeah. And then with the. I'll stick with macro. I'll rotate back to some of the single stock stories and then have a couple of comments as well. One from, again. A listener. I really appreciate these listener comments. People that are often more informed than myself, which isn't saying much, but there's some very well-informed people out there when I make a statement on some development. They may have even additional color to add, and I really appreciate that. I'll get to that in a second. But over to Forex, we had with this rally in treasuries, with this drop in yields, the yen finally responding like this is, you know, this is the backdrop that's supposed to really juice the yen. And it finally did yesterday. With the dollar yen falling reasonably, you know, I would have felt it could have fallen even more, but it felt, you know, pretty solidly down below 157. The action elsewhere, even more interesting, maybe technically, because we have euro yen down through that 176.22 prior little low there. And in fact, it's traded all the way down to the 175.43 area. I think we even took that out very slightly. That, by the way, was the high back in that run up in the carry trades. Ian carry trades. That is into July 2024. So, you know, euro yen was one of those ones that frustrated me for a long time. Like, why the heck is this going higher? Of course, some of it was the ECB hiking. But with all of this eurozone instability concerns, you know, the vice being put to the European economy, or at least, you know, the vice being applied to the European economy, which is actually performing reasonably well given this price rise for fuel and for natural gas. I would have thought euro yen would have performed more to the downside. It's coming a bit slowly, but it is coming now with these new lows here for the cycle. Dollar yen not there. I write about dollar yen in an FX trader piece that I wrote this morning. I will provide the link in the podcast episode description. Because of that big prior wave lower, we're stuck in kind of a little bit of a limbo here technically. But we did survive all of the really key resistance level tests, the 158.50 area, 200-day moving average. There's an itchiness. Moku framework. And there's a cloud level that's around there as well. We need to break through the bottom of that cloud, which is not much below the overnight lows we saw in dollar yen. But really, technically, I think it needs to get some downside momentum. 155.25 to 155 area needs to be taken out. And when you're looking ahead of the calendar, it's kind of obvious what people may be waiting for a little bit here, which is this whole raft of central bank meetings. I think actually very few of these are going to be big catalysts. I don't think there's a lot. I don't think there's a lot of pent-up anticipation linked to what's going on in the market around central bank, what central banks are saying. It's more just the market dynamics. We've just had a big shift here in global yields. There's a bit of a risk sentiment wobble here. There's other stuff going on. And I don't think there's a lot of anticipation around most of next week's central bank meetings, all of which I cover in today's FX Trader piece. The RBNZ meets Wednesday. They're expected to hike 25. FOMC, no move expected. December mostly priced. We'll have Warsh tying himself in knots not to give us forward guidance on what December will bring. Bank of Canada expected to hike 25 after some recent Macklem comments, Governor Macklem comments there. ECB may be the most chance to provide some sense of a catalyst because the December pricing has wobbled. When I say the December pricing, it was pretty fully or more than fully priced for a hike previously. We've seen some deceleration in their comments. from Olly Wren, from Lagarde herself that suggests Yes, they're certainly not looking for one next week, but could a pause in December also be in play as some of the increasing noise, that's maybe the one that could cause more of a market reaction. But I still think the backdrop of the sovereign spreads, et cetera, is probably more important for Europe. By the way, we got the flash PMIs in for France, Germany, and the Eurozone. The Eurozone was pretty much in line with the direction of Germany, so I didn't even jot those down. But France, no big surprise, seeing some ugly surprises here on the services side, 48.4, so in contraction versus the 50.7 expected and 51.2 previous. Also, even though on manufacturing, pretty stagnant, 49.3, so just kind of barely stumbling along versus the 50.5 expected, 50.6 prior. Germany looking quite nice on the manufacturing side. Remember, though, this is from a horrific base, so this is just sort of continuing to come out of that. Absolutely. Absolute dungeon here. But still, it's nice to note, for Germany's sake, 54.2 on the manufacturing versus 53.5 expected, 53.9 previously. And on the services side, 51.7, a slight disappointment and a slight deceleration from the prior number. UK looking very strong. Well, very strong. Looking reasonably strong here, 52.8 on manufacturing versus a point lower expected and about a point lower the previous. And on the services side, very nicely ticking along. 53.1 versus 51.8 expected. And it's really staggering. If you go over to the UK, I mean, London is not the UK. It is in the UK, but it's not necessarily representative of the entire UK. But my goodness, I was out this past weekend to catch an NFL game in London, my hometown team, the Houston, Texas. A thrilling game. It was really awesome stuff. But we were out that side of town, went over to Stratford to the big mall there. And, I mean, I've never seen so many people in a mall in my life. It was an absolute scrum, to use a good British expression. And maybe that's just the status quo. There was certainly no signs of retail suffering in Stratford this past Saturday. Getting back to wherever I came from, which is back into the yield space. So, of course, with the focus on European spreads here, I had Michael writing in to the Market Call email address with some great comments. Michael, obviously, quite knowledgeable in the space. So, trading fixed income back during the sovereign debts crisis in Europe back in 2010, 11, 12 timeframe. He admonished me a bit on focusing on nominal levels. I take the comment, but I still think the 5% nominal level is really important for whether confidence can be found again in the French. A 10-year, for example. Seeing some signs of bids coming in a little bit here. I still think this is a key level to hold nominally. But he makes the better point, to me. That the spreads are really not that remarkable yet. I think I've kind of mentioned that before. I mean, just even in the latter part of 2022, I believe the Italian 10-year spread to Germany hit something like 240, 250 basis points, if memory serves, before the ECB started tilting its purchase, etc. And then if you go back to the really existential stuff, the situation back in the sovereign debt crisis. Yes, I mean, you had insane spreads on the peripheral debt. You know, hundreds of basis points on two years even, and also on 10 years. And that was a far different space, or far different levels of stress. I mean, it was existential. Like, are these countries going to have to leave the euro because they're never going to be able to pay off these bonds? You know, this is before we all understood how big QE was going to be, how big Draghi's efforts were going to be to save the system, save the eurozone, etc. And then Michael also pointing out, rightly so, that at the front end of the curve, the spreads are still quite modest. We've reached maybe 80 basis points-ish, maybe a bit more on the two-year spread versus France versus Germany. And it was for the sake of, in the case of France, it was actually even worse for the German-France spread when France wasn't even really the focus back in 2011-12, whenever that peak happened. So, point well taken. I think directionally and cyclically, really critical stuff, though, also because the direction politics are headed. However, I think in the super short term here. I'm wondering if this issue is getting ahead of itself a bit. Like, how much more can the spreads widen when yields are coming back in so nicely? So, yes, if credit conditions, generally speaking, if risk sentiment is completely horrific, that can spread also to the sovereign level. But at least the immediate pressure of bonds, per se, being sold off is not there in the background. So, in other words, German yields are coming down quite heavily, too. So, I just wonder, I mean, of course, I'm super interested in how this develops as we go into the political cycle in France next year in the spring with the presidential election. But I'm wondering if we could have – it's not a trade I would want to put on, but I just – I'm just wondering what fresh news drives fresh motion. And then I think another great point from Michael was that, yes, he's heard around the block that this OAT trade, so the French sovereign bonds, this blowup. And yields has caught many unawares and is perhaps behind many of these bond managers going – or hedge funds linked to bond trades or fixed income trades going belly up. But it could be more the whole basis trade blowing up. And the basis trade is the huge U.S. trade where – it's difficult to understand. It's difficult to quantify. But basically, you are going long physical bonds and you're shorting the futures against them to take advantage of some carry. The advantage that you can get if you can leverage up the trade. That trade has been made unprofitable by some of the shifts and the cheapest to deliver. I'm not sure of all the mechanics. I referred to a piece – I believe it was last week. It could have been the start of this week. I'm pretty sure it was last week from Convexity Maven talking about how this trade would become much more difficult from here. Although since that came out, we've actually come lower in yields, not higher. In any case, we have – just appreciate those comments from Michael. Thank you. And just thought I would add the color. I think it's – It's certainly valuable to pass on to all the listeners here. Okay. I think that covered pretty much the – oh, and by the way, the 10-year Germany-France spread has backed off to 170 or low 170s basis points after spiking all the way to 179, a new cycle high yesterday. More in the general credit space, high yield, et cetera. It's not consistent and across the board. We did see this Bloomberg indicator I track of the high yield spread to U.S. Treasuries did post a new high. Most of that or a lot of that is simply on – and by the way, it did exceed that prior high from the spring when the Iran war broke out, 338 basis points if memory serves. Now we have to go back to the Liberation Day events to find a higher peak for comparison. But a lot of that spread – widening was on U.S. Treasury yields coming down more than stress – further stress in the corporate debt space. I did see Corweave Bonds posted a new high in terms of the CDS prices. But the – so a couple other issues I looked at did not. So Paramount Global and a few others were not showing further signs of stress in the – at least in the CDS space. Back over to a couple of individual stories here. So again, super interesting to see that meta sell-off and the 200-day moving average getting pretty close now. And if we look actually at a couple of other major stocks, this 200-day moving average angle on things, much more interesting on single stocks than on many other instruments. A Tesla seeing a rejection right around that 200-day moving average yesterday. Google dropped below its 200-day moving average on Wednesday and accelerated in the selling yesterday. What else did I have? Oh, yeah, Bloomberg – not Bloomberg, but Bloom Energy reporting yesterday. They had an ugly session on the cash session but are back up quite sharply post-close. I'm a bit confused about when they reported. They had a very strong earnings report. And their guidance was very strong as well. But because the – of course, with all this AI spending skepticism afoot, it almost doesn't matter what you're doing these days. And it was marked up so high. I mean $351-plus per share on the run-up into that June high when everything like that type of stock was going crazy. All the way back to 217 yesterday or 218-ish on the close and 223 now overnight. But also, it found support just after it passed below its 200-day moving average. So that's in play in a lot of interesting and large equities or single names out there. Apple, by the way, hitting a new all-time high. Of course, very much not associated with AI-related spending. It is getting rewarded for that now. And there's now some additional fuss and focus and hype around their foldables, which are seeing strong demand from what I understand. We also had Western Digital, the hard disk maker, out. I did not see the color on their earnings, but they're pretty much flat after reporting earnings. But this is after a very ugly 6.4% drawdown yesterday. But when you look at the chart, 6.4% move doesn't look like anything because the stock has been all over the place. So everything is high momentum and high amplitude with that stock's moves these days. Blackstone, private equity name, up 8.4% after they reported. reported earnings if you want to poke into the story around that one. And then there was one general comment on the market. I did note down what it's worth, and I don't know that it's worth anything. And perhaps it's this situation where we had 330-plus gainers on the S&P 500, even though it looked like a bloodbath when you just look at the top-line drawdown on the day for the major indices. The VIX spike was far smaller yesterday than what we saw on October 16th. So, again, we're not seeing exactly broad panic here. So we need to figure out if this is something that's going to continue to develop, if it's some kind of internal adjustment, some active trades that are just being squared. And once that sort of plays itself out, perhaps if passive doesn't get shaken, we then just go back to a new market upturn into year end. I mean, let's remember the whole end-of-year sort of rally scenario or whether something more nefarious is afoot here. I very much have my mind open on that, but did find yesterday that the most interesting development was not so much in the equity market, but actually in the bond market, as we've just talked through. All right. That pretty much wraps it up for today. I just had a couple of things I wanted to mention on the links. Again, you can find those in the podcast episode description or in the article linking to this podcast on the Saxo Trader. By the way, yesterday I put a whole bunch of book recommendations out. If you're interested in reading about things adjacent to the singularity and what that could mean for human society and technology in the near and distant future. So there was that one. And funnily enough, one of the books I discussed that I have read and that I highly recommend by Adrian Tchaikovsky, this guy is phenomenally creative, creates these super interesting sort of speculative fiction slash science fiction sort of future scenarios. They just seem so realistic. And one of those. That I read was called Dog Wars. It's essentially about these super enhanced dogs that are used for basically for mercenary applications by private actors. And then the morality of what is the sort of status and rights of such a such a being, the person, you know, a being that has essentially some aspects of a dog in terms of their loyalty to their master and things like that. But at the same time, they have human intelligence. And they're super enhanced physically. And it's not just dogs. It's other creatures as well. And even humans that have been somehow enhanced and cloned. What are the rights of these types of beings in a society, in a near future society? Super interesting avenue of investigation and of ethic investigation, the ethics of that, as well as just a very interesting yarn and very well written. He's written a couple of follow on books to that. But just why am I talking about this? Well, it was a little bit in line with yesterday's discussion. Around the singularity. But as well, you see in the FT today that no other than Palmer Luckey of Anduril, apparently he's not actually putting money towards this or getting equity into it. But it's his so-called brainchild, according to how the article positions it, to create a new company that will be making enhanced dogs. Something like it was going to be called Warhound. You almost can't make this stuff up. Somebody saying something about the Captain America program. For dogs. Some company that's also working on what they call the, quote, de-extinction, unquote, of the woolly mammoth. Because you can extract DNA from these old woolly mammoth teeth. Then I guess somehow create a new woolly mammoth. Whatever. It's just super interesting that those two things happen to dovetail. A book where I go and there's something showing up in the FT the next day that was somewhat related to that. All right. So besides that, there's a. I just thought I'd pass along this. I don't know if it's being too much of a worry war, but I do worry about this. And it's related to the cyber attack story that I passed around yesterday where 70% potentially of sites could be under attack with this PHP shell, whatever it's called, bug. But, you know, those that are, of course, more responsible outfits will be plugged into all the patches and would not necessarily be affected by this. But if you're running around and maybe on smaller sites, putting your credit card information. And with these AI tools that allow such comprehensive hacking attempts by potentially millions of agents because they're so easy to copy, you don't have to have any really brains. You just sort of pick up these AI tools and things that these AI agents are discovering and can deploy them. Much less, of course, nefarious actors that are actively doing stuff like this. You know, if you're if you're transacting and putting in information on the less well. Defended areas of the Internet could be very dangerous for your personal information, of course, for your financial information that could result in, well, the use of your credit card, theft of your funds. And the final analysis in the worst scenario, not to mention, you know, people posing as you if they manage to get into your various accounts, if you're operating an email, not on the major services, etc. So let's hope those remain robust enough to keep us all safe. But I thought I would pass that along as a as a slight public service announcement as well. And then there was. There's a cool one from Wired magazine, you know, talking about the irony of somebody finding evidence that basically and I've been fascinated with this really long term climate history. There was this wild these wild swings in ice ages, the global climate going in and out of ice ages for, I believe, is tens of thousands of years over the last hundred thousand plus years. Something that was just you would sort of see a accumulation and then things swing back the other way very violently, very unstable climate. And that, you know, many theorize that it was actually humans beginning to burn stuff that stabilized the global climate. That's not particularly controversial, but some evidence actually that they knew ice age was underway and that it was the human or anthropogenic global warming that helped prevent that ice age. Now, this is not to be an anti climate change booster or anything, but I just think it's really interesting to consider these things and also to consider the ironies of CO2. That we have 15 percent more CO2 in the atmosphere now than we had in 2000. I mean, we know it's only X parts per million and we think that's such a small number, but we have 15 percent more than we had just in 2000, 37 percent more than we had in 1950 and 51 percent more CO2 in the atmosphere than we had in 1800. And this is not to be alarmist about what further warming this will cause, but just to indicate that CO2 is food for plants. And there's a massive. Uh, boost to the available food in the atmosphere to vegetation. Now, some of those benefits to vegetation is constrained by the fact that places are getting too hot. Uh, you know, that can cause water shortages. You need the water as well as the heat, or sorry, as well as well as the CO2, uh, to be able to grow. And there could be other nutrient limitations that prevent vegetation from realizing its ultimate potential from the CO2. But it's just to point out all these, uh, uh, interesting interactions. And you may find that an interesting area of inquiry. Uh, and an article to read over the weekend, which effectively takes me to the end of the podcast today. Um, super interested to see if yesterday's wipeout is some kind of climax in this markdown of some of these AI related assets, or if this is the beginning of something wider, uh, developing. It's a very, very interesting week ahead with all the central banks reporting. And now that we've had this big pivot, uh, or seeming pivot, at least in the fixed income market, as well as all the geopolitical. Stuff that's just, uh, bubbling along in the background, uh, to begin with, and then earning season, uh, haven't even noted the earnings season incoming next week. There's already a few up on Monday. Uh, the biggest reporting if memory serves are, uh, Microsoft, amazon.com and, uh, alphabet, not necessarily in that order. So yeah, stay careful out there. Have a great weekend when you get there and we'll be back next week with the next Saxo market call.
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