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 host and guests and do not constitute investment advice or recommendations. All information provided is for educational and entertainment purposes only. Hey everyone, it is Wednesday, 21st of October, 2026, and a curious session once again with many divergences. Repeat, repeat, a broken record, broken record. We have a broader market that's quite flat, S&P 500 up only a little over a quarter percent yesterday, and NASDAQ 100 was actually slightly down, as was the SOX index of semiconductors. But you look at the broader market. Look at our S&P 500 equal weight. Look at the Russell 2000. Look at one that I hadn't really noticed, but I think is quite similar probably to the S&P 500 equal weight over time, the so-called S&P 500 XAI. So I guess excising the AI adjacent stocks all up quite strongly on the day. So your median stock out there having quite a strong day. And by the way, that so-called S&P 500 XAI bottomed around October 1st, right at its 200-day moving average. And has since advanced very strongly since then, is only about 2% from its all-time high. The equal weight S&P 500, only about 3.3% from its all-time high. And then we look over at this so-called broad AI. Now, part of this is because there was that huge pump into the end of Q2 for many of these AI-linked trades. But still, it is suffering in local terms. So we are seeing this, you know, if the one sector goes up, the other sector goes down, sector being the broader market, the median stock, the other sector being, you know, AI stocks to a large degree. We're 21% off of the all-time highs in that broad AI index that Goldman Sachs runs. So clearly, this divergence continuing reminds me so much of the markets where I was following things so closely back in the year 2000 timeframe and into 2001, even into early 2002. I've talked about it here on the show before. We had, back then, there was this huge neglect of, you know, excellent companies, quality companies, so-called blue chips, you know, your everyday sort of large-cap companies that were not tech-adjacent back then, really doing poorly, insane valuations. I wouldn't say it's quite the same case today. We have much richer valuations across the board because of the passive phenomenon. But back then, some of these were outright suffering because everyone just had to be in tech. And you would see, you know, of course, all the tech shares were advancing like crazy. And then when you got into the sort of the initial tech break in March of 2000, which was the absolute high in the NASDAQ 100 and the NASDAQ composite, which was more closely tracked back then. Subsequently, for many months, you saw a, if the one was up, the other was down, like almost like a one-to-one negative correlation in the broader market versus tech for quite some months. And then, you know, there were a couple of other things that were happening. So, you know, there were a couple of other things that were happening at the same time, but, you know, it was, you know, it was just, it was, you know, a little bit of a, you know, a little bit of a downfall. So, you know, there were a couple of other things that were happening. And then, you know, we saw a rotation, I should say, into outright value trades that kept going well into 2000. And, you know, I think that's, you know, there's a lot of good stuff going on there. I think, you know, we saw a rotation, I should say, into outright value trades that kept going well into 2000. And, you know, we saw a rotation, I should say, into outright value trades that kept going well into 2000. technology is equal to 10 launches on Falcon before because of both the capacity, I assume, of the Starship, but also these new satellites having far more capacity to service connections. So, you know, it's all an interesting story, but I mean, does it deserve to be marked up over 10% after hours? I don't know. Should we listen to Elon Musk talking about a, I assume he means an annualized annual recurring revenue of $500 billion to $1 trillion? I didn't see that annualized. So, supposedly, we should be expecting this $14.6 billion in revenues to mushroom to, well, assuming it is annualized and assuming it is the last quarter of 2027 he's talking about, that would mean almost a 10x on the revenue growth over the next five quarters. Let's see. We know that Musk does what he does, but I'm a bit surprised, and I assume it's this report. It has the general NASDAQ 100 up as strongly as it is overnight. Not sure. It could be a little bit of the retreat in oil prices, you know, helping things out at the margin, too, and I suspect, actually, that is the case. There was a decent little tumble in oil prices. I'm not sure on what. I'm actually a little bit not quite sharp on what's moving the energy market this morning. And, of course, in Europe, the pressure from energy prices is tremendous with not only oil but gas. Very high levels. But it's also, of course, the sovereign yield spreads that have been so much in focus here in Europe, and particularly for France. And I just want to point out, I mean, besides the fact that we have new highs for the cycle, in fact, hitting just above that 159 basis points level that has been the high intraday so far, we've hit that this morning. That's a concern. That's up another five, six basis points from yesterday. But maybe as importantly, so at what level is this spread a concern? And I wouldn't just focus on the spread, but we also need to look at nominal yield levels. And on that note, I'm going to stop there. I'm going to stop there. On that note, we have the French 10-year trading today right at that 5% level. And if we go back to late 2022, when we saw the Germany-Italy spreads once again becoming a problem, there was some concern around that. The ECB, of course, did make some motions to tilt its so-called PEP purchases, pandemic emergency, whatever the facility was called, towards Italy to help crush that spread back lower. But it happened right around. It wasn't just the 240 basis points or 250 basis points, whatever that spread was around there. It was right around the time the BTPs were hitting 5%, the 10-year BTPs in Italy. So this is a key area. Is something coming from the ECB to suggest some kind of management of the situation? Will the spread be allowed to blow wider? An important focus today and in coming days, really, of course. We also have a U.S. 20-year auction. There has been some talk about the U.S. Treasury stopping these 20-year issuances. It is often the point on the yield curve that is actually the highest, ironically higher than the 30-year, because it's not offering you the full 30 years. So you're getting this weird expiry, I guess, for those that want the max duration, life insurers, et cetera, they prefer the 30-year, whatever. So often the highest point on the yield curve. Talk of them stopping the auctions because reducing the amount of long-duration bonds that the Treasury is issuing, et cetera. There is one going forward today. And we did see the high-yield spread, so high-yield so-called junk or high-yield debt spread between those bonds and the U.S. Treasury yields heading back higher. Local high here of 332 basis points, just below that high from March as the Iran war was breaking out of 335 basis points. So keeping an eye on that. In FX, things are very quiet. The dollar is a little bit weak. The euro is maybe a little bit weaker still. Yesterday and the yen is also kind of sideways here. But overlooking around the edges, we have euro sterling making new lows, 17-month lows and below, well below 84, now at zero spot 83.80 and below this morning. Interesting test here of confidence in the relative confidence, of course, between Europe and the U.K., but as well with the autumn budget statement coming up next Wednesday, the 28th. Be interesting to see how this relative, again, plays out. Again, the big range level, really the post-Brexit low for euro sterling was zero spot 82. And now we're getting within a couple of percent of that level. Let's see, a couple more anecdotal things. There was some macro data yesterday. We had a using U.S. housing starts number that was very ugly. This has been kind of a volatile data series of late, but it was at an annualized pace of just 1.22 million versus around 1.3 million expected. And we're getting back to that. We're getting back to levels from well before the pandemic on the scale or the pace of U.S. housing starts. Then there was this, just saw this single story that indicating, talking about worries about impact on real estate, not just, of course, private housing, but the commercial real estate market in the U.S. has really been horribly impacted by the pandemic and the lack of office or lower occupancy rates. For offices, because American workers have come back physically to the office to a far lower degree than perhaps elsewhere. In any case, there was one single story about a downtown Seattle address, Seattle, Washington in the U.S., where the building was valued in 2019 at over $300 million and just sold for $48 million here recently. So an 84% drop. And what that can mean for a tax base. So there's a compounding effect for real estate values when you have to mark to market and you have the property taxes related to that. It's a fraught space. And I think you sort of got the housing market itself, not even talking about commercial real estate, holding its breath with totally frozen, really, in terms of the transaction volumes. And if you get the price realization, this becomes an issue for local authorities, municipalities that would either need to raise taxes or cut spending, which of course cuts funds going into the economy. This is a key issue. Just something to park, an anecdotal story there for now. There was also this company in Australia, never heard of it before, obviously not very big in a global sense, but very much in an AI-linked story. Essentially, somebody was positioning this company called Next DC as sort of Australia's version of CoreWeave. It was down at $42.5 million. Yesterday, did not see the approximate story. I think it was about obviously something negative around their spend or their capacity or otherwise. And their bonds, which were trading at a price above 90, don't even know what the coupon is on them, but the bonds were trading above 90 less than two weeks ago, suddenly now trading less than 70. So this is another one of these anecdotal stories about the sort of neocloud type companies struggling. And that takes me to the links for today's podcast episode. You can find them in the episode description. Look for them there. There was a story, I haven't even read it yet, but it's similar to that or adjacent to that neocloud story is CoreWeave. And I hadn't thought about it much because normally when you see a company's bonds under so much pressure, and recently you've seen talk of CoreWeave bonds selling at a yield of 15%. When yields are getting that high, often the equity is trading down close to zero because essentially the equity is considered a wipeout because you're talking about some kind of insolvency situation where you're trying to look for credit recovery, which is the bonds are senior to the equity, obviously, for some kind of recovery from the situation if there is a liquidation event or bankruptcy. But this is not the case. I mean, CoreWeave still has a stock price, I think it's in the low 60s, or at least it was recently. And this link or this article, I guess, talks us through why it's so high. And I don't know why that is the case. Curious to have a read of that. There was also a story and I'll find a decent one covering it, this rare earth element yttrium, which is basically important for many applications. It's used in jet engines and gas turbines, like coatings, basically on those turbine blades. Typical, these sort of hot or high energy protection type of coatings. This is often something you see in these rare earths. Yttrium. Oxide apparently used in semiconductor manufacturing, again, for coatings and something related to etching. Advanced ceramics, lasers and defense, medical technology, displays and phosphorus, just all these really interesting exotic applications. And maybe the overall sort of cost of it going into the process is not particularly high, but if you don't have it, you can't do it. And that's the way it is with all of these rare earth, not all, most of these rare earth elements. So yttrium, it's spelled with a Y, Y-T-T. With yttrium. In short supply in Japan and China essentially making itself a nuisance and not wanting to export anymore to Japan. I'm sure some of that is strategic, geostrategic, hey, there's military applications, whatever the excuse may be. But obviously China leveraging that control of yttrium supply chains. And there's really not much to be had in the rest of the world, particularly again with this, as is so often the case with the processing around it. There's a very short list of companies that have any kind of credibility on producing it, and even the ones that do are sort of like Linus, the Australian rare earths company, Linus with the L-Y-N-A-S, only having their sort of in planning, basically in the roadmap to be able to process the stuff even if they are producing the raw material. So there's a couple others. You can look into USA rare earth. These are not recommendations, just if you're interested in the whole area. And again, a lot of this is about companies that might even be producing it now, but are not necessarily processing the actual oxide that is then used in the industrial applications of this rare earth material. And then there was super interesting. I saw one here on a new, I guess it's a podcast. First episode is out with Brent Johnson of the Milkshake Theory. But not just him talking up his point, but he sort of purposely picked somebody that has an opposite viewpoint. In this case, a guy named, I think, John Butler talking about a really critical issue, the U.S. current account deficit, what it means structurally for the global economy, because it is a central driver of global instability. And here you have the U.S. possibly disengaging here, seemingly disengaging here from sort of providing the whole global framework. The whole Eurodollar system, arguably, with its geostrategic moves, what does that mean for the residual global currency status of the U.S. dollar, which continues to be a status the dollar has? Is the U.S. government still credit worthy? Does the dollar need to devalue against basically everything that's of a hard asset nature, gold, et cetera, because this current account deficit can never be addressed? Massive tectonic, huge questions, and two different answers for now from these two sides. I think it's an absolutely, existentially important debate to engage in, or at least consider in coming years. So there's that one as well, and I'll provide a link again in the podcast episode description. All right, so we go into a day today, Wednesday, before the U.S. market opened with futures up heavily. I certainly hope it's not on SpaceX. I don't think SpaceX is here to save the AI trade, but let's see what happens. I'm far from convinced, but we're hanging in there for now. Let's see what the coming day and days will bring. Stay careful out there, and we'll be back soon 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 marketcallatsaxobank.com. That's marketcallatsaxobank.com. Saxo. Serious trading worldwide.
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