Speaker 1Welcome to the Saxo Market Call. Before we get started, it's important we emphasize that the views and opinions expressed in this podcast are those of the hosts and guests and do not constitute investment advice or recommendations. All information provided is for educational and entertainment purposes only. Hey everyone, it is Monday, 26th of October, 2026, and we have so much on our plate for this week. And I've got some great, great links for you today. If you do nothing else, you can turn off the podcast and go hit the links. Some really good ones. A hat tip again to FT Alphaville for coming up with some of the good ones. A couple of these are the things that have gone viral outside of FT Alphaville's influence. And I'll try to weave together some of the recent themes we've been talking about on the podcast and some of what's in these links. I think there's a lot of things to chew on here for the markets. What's going on within the equity market, which is, again, these crazy divergences. Well, just call them crazy. They are what they are. The divergences we're seeing in the market internals. So we get another market day where the median stock having a pretty ugly day, but down around 0.8% on Friday. But if you look at the broader averages, the S&P 500 didn't look too well, about down minus 0.5%. But the NASDAQ was flat and the semiconductor index, the SOX, was up actually over 0.4%. So a lot of momentum stocks actually putting in a positive day, whereas the broader market or the median stock was not doing too well. But it wasn't the fireworks or anything. It just, again, with these divergences. And it reminded me, as somebody was pointing out private equity names, and look at their performance on Thursday. So you had that Thursday day, of course, as we covered last week, was really ugly with, or I should say, was really ugly for some of the markets. But it was really ugly for some of the markets. And what was it? 330 something of the S&P 500 actually had a positive day. And the high momentum slash AI hardware, all this stuff, these names were generally doing very poorly that day. That was the case as well, not as well, but on the flip side, for private equity and software as a service, which had absolutely stellar Thursdays, and then had an ugly Friday. So I think what's happening here, you know, the inference I'm trying to make, at least, is that these long short portfolios are just getting barbecued quite often with the, you know, the longs are doing poorly, and then the shorts are doing poorly on the same day, or vice versa. And it's probably leading to an overall rough time of it in terms of value at risk in terms of the performance of some of these funds. And that leads me already to the first of the links I'll provide in the podcast episode description. It was once again, Albert Bridge Capital, not once again, them, but once again, FT Alpha, pointing to this piece, at least I believe it was doesn't matter. It's a very good piece on, you know, what is this whole nature of passive, and how it influences what they what they call the true float is, and whether that true float is actually much smaller because of the reflex of buying that just has to happen every month with the rotation and of passive capital, and how big retail is as a presence in this market. And how temporary things are getting driven up and down based on momentum and things like that. So I think you're seeing some colors of what might be driving these weird internals in that piece. So I think very much worth a read there to understand these, these market dynamics. And by the way, you know, among the winners on Friday were a couple of the biggest cybersecurity names, obviously, on this PHP shell, whatever it's called the hack, where AI systems basically uncovering a ugly fault in the programming language PHP used to create a majority of web pages. And if you don't have your patches in place, you could pay dearly with with this hack, which could expose all of your information, I guess, could expose you to having your website stuff changed, and other nefarious things. In any case, CrowdStrike up over 8% Palo Alto networks up over 7% on Friday as very strong gainers. Overnight, we're seeing actually quite good futures markets. in the US, very positive start to the day in Europe, I think a lot of that is linked to the French debt situation calming at the moment, I was thinking last week, there might be some room for it to, for things to calm down a bit, no new news, just meaning that we sort of ebb back to a little bit in terms of the spreads. And that's indeed what has happened. I saw the 10 year spread Germany, France hitting below 160 basis points this morning, after the Thursday close at 174 basis points. And we saw a 177 basis point drop on Friday. So you're seeing things like the, the French 10 year yield dropping below the key 5% level. And for example, the two year German bun was up some on the order of three, four basis points, while the French two year oat was down three or four basis points here this morning. So that is seeing a bit of mean reversion, still some big, you know, obviously some structural concerns around all of this. And it's a huge political wake up call for France. massively interesting year ahead for that country. But for now, things are calming a bit. Pretty calm US Treasury markets as well. We do have a two year auction up today. Curious to see what the demand is there. When you have an FOMC incoming this week, and it is a huge week for central bank meetings, we have the RBNZ Bank of Canada and FOMC all up on Wednesday. First two of those are expected to deliver a hike, whereas the FOMC is, you know, we're all about waiting for this December meeting where the odds have been slightly dropping of late for another rate hike. And of course, we'll have Warsh tying himself in knots to not provide any forward guidance for that. At least he has the comfort of this being a meeting where you don't get the quarterly projections, etc, which I suspect are an endangered species. Anyway, we also have an ECB, they're more prone to, of course, forward guidance, as is the Bank of Japan. They're meeting respectively Thursday and Friday. And a couple of ECB backpedaling moves of late in the rhetoric, at least I'm wondering if it's, it is fair game to see this December rate hike odds fading. If we look at where we were closing the last week in terms of oil prices, of course, oil and gas, an issue for Europe. And in fact, the TTF contract, I'm suspecting this is due to sort of the longer end of the forecast model starting to predict some pretty cold weather coming into Europe in early November. We're seeing TTF gas up at 97 euros for that one month forward contract. Oil has dropped back. But I mean, again, with these levels, are we talking about the ECB needing to hike? Are we talking about European recession risks and them needing to think about the growth side of the equation? I think there's a bit less one to one in terms of energy prices, and ECB forward expectations. So kind of cruising all around the shop, I guess, since I'm on rates here, talk about FX, deliver forward guidance and deliver message that might be a little bit modulated, according to whatever the yen is doing, coming into that Friday Bank of Japan meeting. So that's something to keep in mind, as well. On geopolitics, this is really important, because while oil prices have come back in after a big spike on Friday, I think buying some some weekend optionality in case hostilities were set to break out over the weekend, there is ongoing trouble with Huti attacks, etc. But I think the big problem here is we do have a very strong sense that Israel and the US are gearing up for some kind of major attack in Iran on an unknown timeframe, but likely one, at least according to observers, not myself, but I would agree that it would come after the US midterm elections. Israel has, you know, Netanyahu out saying things like that Israel faces an existential threat. There's been talk of Israeli positioning, it's some of its forces. We also have an Israeli election. This is incoming tomorrow already. It doesn't necessarily have to mean anything about Netanyahu's status immediately. It looks like there could be risk of another, you know, drawn out process of trying to find a majority or a government that can conform, and hence replace Netanyahu. It may also not necessarily mean anything geopolitically for the posturing of versus Iran here. So let's see. In any case, Netanyahu would stay in place until a government could be formed there. And of course, we have the midterm elections on Tuesday next week. So just over a week away. And then you've got a situation where between then and the sitting of the new government, there's nothing to lose mentality by the president and, you know, kind of a quiet period until the new Congress sits. But as well, you've got a lame deck presidency where you have a president and legacy building mode, not having to worry about reelection because he's already been reelected. So maybe room for more drama on the geopolitical front with that kind of setup. We also, as if it's not enough this week, we have We have, of course, earnings season in full steam. I'll just reel out some names coming in. Today we have Cadence Design Systems and Verizon as the top two highlights. And these are highlights only. Consult your earnings calendars. And caveat, I use one source that's freely available on the web. And, you know, 10% of the time they're a bit wrong on which company is reporting when. So do your own due diligence on the timing of these. I think the top names are pretty secure here. But Tuesday we have, so tomorrow, we have Visa and Seagate. Seagate, of course, a key hard disk name, although Western Digital already reported. Corning, the glass and fiber optics equipment maker. Those are on Tuesday. Wednesday we have some big ones. We've got Alphabet and Microsoft. Then also, I'm assuming earlier in the day since it's out in Asia, we have SK Hynix. But we also have GE, Vinova, and KLA Corporation. ServiceNow and Fortinet. So quite a grassroot. We have a grab bag of different types of companies on that day. Thursday, Amazon.com and Eli Lilly. As well as Samsung, Intel, MasterCard, Caterpillar, SanDisk. So quite a haul there for this week. Friday, I believe some of the energy majors are reporting as well. So pretty clear and easy to say that this is a massive week ahead. Although still, I think, with some pent-up uncertainties around the Middle East. Around the future of that conflict with Iran. And with the direction of oil prices, etc. Oh, and I neglected to mention in my geopolitical run-through that big surprise. Really big surprise. Oh my gosh, look at the currency. Brazilian election. So Lula pulling it out in the run-off this weekend. Massive surprise. I mean, the Brazilian Real lost more than 10% in one go. There were a lot of trades on for a Brazilian Real appreciation based on Bolsonaro winning. Which was seen as a likely scenario in this run-off. Because those remaining parties were seen as more likely to tilt. People voting for those remaining parties that didn't make the run-off were seen tilting more towards Bolsonaro. And that did not happen. Bolsonaro apparently set to challenge the results here. That something was something about a last-minute extension of voting or polls hours being extended. But it seems pretty orderly what happened there and for good reasons. And actually, Bolsonaro's own party was asking for polls. Or polling hours to be extended in some of the districts. It was seen as favoring its chances as well due to weather or something. So long story short, we have a non-Donald Trump aligned outcome here. And that will be very interesting geopolitically as, of course, a Lula government is going to be more open to taking a more independent path. A bit like Carney's posturing as well in Canada. And Brazil is incredibly. Reliant on China for a lot of its exports. So just a, you know, I guess a spanner in the works, if you will, to use a British expression in the whole Dunrow Doctrine. You know, the idea that the U.S. is going to have some kind of hegemony at least over the Americas here. So, yeah, let's see how that unfolds from here. Now, onto the links in today's podcast episode description. A whole lot of these. There was somebody highlighted. This last week on one of the chats that I participate on. This character, Vincent Deloam. I can't remember the name. Stone X or something. He's a strategist for. He had a long-form interview on the Meb Faber Hour. I think that one in general is worth listening to. He talks about inflation being way understated. He uses tax collecting as one of his favorite metrics on where the economy is. And he's saying that you've seen up to something like 8% year-on-year. Tax collection earlier this year. That's suggesting that inflation is running quite hot and is understated. But there was another comment that this. And I didn't see this one specifically from him in this interview. But this chat attributing a comment to him that. And it wouldn't surprise me, although the number looks a bit high. But that the U.S. equity market would be showing far, far higher volatility as expressed in the VIX. If the old correlations. Which. Which tended historically to be far more positive than they have been of late. Were extant. So it would be something like 40-45 in the VIX rather than the current level around 20. If you didn't have all these wild negative correlations. That are dampening the apparent volatility on the overall index. Even though the internals have been doing these wild things that we've been talking about for quite some time now. So there's that one. And then there's also he himself on X. Vincent Dedaouam. Who tweeted or yeah. Posted a link to a market huddle podcast chat with this Robert Mullen. Who is. I can't remember with who. But he is. Arguing the case for commodity boom for inflation. Although he's also seems to be bullish the yen and fixed income at the moment at least. Based on the big structural calls on. Some big structural calls on especially industrial commodities and things like energy. So. An interesting interview to pursue there. And then you know the pot shop one I mentioned earlier. And there's also one FTR headline the EU ways mirroring Donald Trump and securing critical minerals. So again on this whole commodity front supply chain front there's this ongoing issue. Of every you know every major region needing to secure these these supply chains and ensure that no other major power has control. Because when you have a China that can come in and dump industrial products in your region that your own economy is relying on but also has the power to cinch off critical mineral supplies when you try to create policy to move against their industrial dumping then you have a problem. So again it encourages this whole idea of we're moving towards a multipolar world here. In any case I really wanted to get on to this. Well I guess it's a pair of links. So the first one's a little bit more straightforward and is. The Apollo's Torsten Slocke out with a piece saying that there is zero financial payoff. Zero financial payoff to corporate America from the AI spend as they are all backpedaling on their spending and there's no signs of productivity growth for the S&P 493. In other words the non mag seven companies even though the mag seven companies are seeing quite a different look from all of this. So thought I'd pass that one along some interesting charts. But really the money one today and this was also passed on by FT Alphaville was this so-called Perkini report if that's how you say it by Dario Perkins of TS Lombard. It's a wonderfully written piece sort of written as a retrospective from the year 2030 on how the AI bubble unwound. The scenario being one of that it starts basically in late 2027. Sounds a bit late to my mind. But of course this could go on for another year plus. It's titled the 2028 reality crisis. And one of my favorite bits about it is that it sort of starts off with this or a little further down. There's a preface. But then here's the title of the second section. Bull markets are about narratives. And here I want to segue this or dovetail this with the recent book that I've been touting. 1873 super interesting book. Go find the links in the prior couple of podcasts that I've put out. So Liaquat Ahmed writing this 1873 book because clearly he was really curious about the origins, the deeper origins of the Great Depression, which were the decision to go to the gold standard back in the 1870s. And 1873 goes through this and it's absolute must read for anybody covering financial history. Any case. So back to our Dario Perkins piece here. Again, this retrospective of how the AI bubble unwinds written as if we are in the year 2030. This section is titled bull markets are about narratives. And then he says, imagine that we are in 2030 looking back at the climax of the AI capex splurge through the eyes of a financial historian like we do for 1873. Again, he calls out that date 1929, 2001 and 2008. In other words, we're going to carry out a postmortem ahead of time. So it's just really well written. And he talks about the, you know, the, the factors that are, that are suggested as a bubble or make it a huge risk, including the vendor financing, off balance sheet leverage, the labs themselves and their murky financials. So when I say the labs themselves talking here, of course, about anthropic and open AI, which are so existential for at the center of that whole circular financing game. Uh, the customers themselves who tend to be the very large companies and, uh, on, on down the line. So, uh, and then he cooks up a scenario for a 2027 beginning of the problems and sort of mushrooms in 2028, I guess, as the earnings reports start to come in and there's a shortfall in expectations, uh, or an actual results as well as expectations. So that's, uh, that's the final link I will provide on today's podcast episode description. I really, uh, recommended reading there. All right. That takes me to the end of today's podcast. For whatever reason, sentiment turning up a bit, I guess, because we didn't have war developing over the weekend. I'm not sure. There's so many things to look at this week, and we'll take it one day at a time. Stay careful out there, and we'll be back tomorrow with the next Saxo Market Call. This has been the Saxo Market Call podcast. Thanks for joining today's episode. We're always happy for your feedback and questions of all kinds. To reach out, you can drop us an email at marketcall at saxobank.com. That's marketcall at saxobank.com. Saxo. 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