Markets Wrap: AI Jitters, Budget Expectations and UK Housing Rebound?

SPEAKER_1 (0:02)

Bloomberg Audio Studios, podcasts, radio, news.

Merryn Somerset Webb (0:12)

Welcome to the Merryn Talks Money Market Wrap, where we talk about the biggest moves in the markets this week and what is driving them. I'm Merryn Somerset Webb, UK Money Editor-at-Large.

John Stepek (0:21)

And I'm John Stepek, Senior Reporter at Bloomberg, author of the Mindstealth Newsletter, and the only person on this podcast who isn't dying of the cold.

Merryn Somerset Webb (0:31)

I am not feeling great, John, and that's why you are going to be carrying this podcast.

John Stepek (0:37)

That'll make a change.

Merryn Somerset Webb (0:38)

Right. Well, there's a lot going on either way. And we're finally beginning to see some major jitters in the AI part of the market, although all the market is AI, as we keep saying. And I'm not actually sure that we have a huge amount to say on that, because we've talked a lot over the last few months about our worries around the level of CapEx, our worries about how much the big companies have to make in the way of revenues and profits to justify the CapEx and to live up to the valuations, et cetera. So it should be no surprise that the market as a whole is starting to ask a few questions around this now.

John Stepek (1:10)

It does feel as if that is all that's happening. It's not obvious that there's anything explicit to say that this is a broken moment. It's more investors have gone from saying, get me AI at any price at all, to starting to just be a bit more picky. And I think one of the obvious things was that at the end of last week, a big Australian data center IPO that was meant to be a bit of a flashy one, had to get pulled at the last minute because they were just asking for too much money. And whenever you read about it, it is actually pretty clear that they really were just asking for too much money. It's not as if this was the first time at which any concern had been expressed to these people about how much they wanted. Investors were already a bit jittery about it, but I think the fact that it fell over.

And then obviously the South Korean market, the KOSPI, actually peaked quite a few months ago.

So in a funny way, this sort of almost feels as if it's more like a slightly delayed reaction to all of the pressures that have been building, and obviously including financing costs because that's kind of like treasury yields in particular have gone up. There's this background issue of kind of like tightening finance conditions. And I suppose the ironic thing is that, or not ironic, I suppose it's actually completely predictable, but as the AI stuff is actually running into proper trouble this week, so government bond yields have actually started to come back down again as people have sort of said, I want something safe now. And there's a kind of knee-jerk instinct to just go back into all the government bonds. A moment ago, they were treating this completely untouchable.

Merryn Somerset Webb (2:48)

Now, isn't it the delayed reaction thing? I don't know if you remember a few months ago, we did an interview with the author of that book, 1873, about that bubble and collapse then. And one of the fascinating things about that was that there was this horrible collapse in Vienna, then it took forever for it to translate. It was like, just a one-off, just a little sort of private thing going on here. And then it eventually, but a good year afterwards, translated into a full-on collapse of the railway bubble and that capex booming. Maybe Korea is our Vienna.

John Stepek (3:20)

Yeah. And I think the other thing that's really interesting about the Parallels with the 1873 book are, then unlike, say, the kind of 1929 crash in the Great Depression, or the 2008 financial crisis, actually putting a finger on the trigger or why it happened is actually really pretty difficult. And it was much more of a kind of lingering, lasting on and off kind of slump that came out of it. It's interesting to see talks about biometallism. So basically change to the monetary kind of standard as being one of the big issues there. And it's interesting that we've got our own kind of questions about the monetary order and fluctuations there in a way that we haven't had for many decades. But obviously, there may be a parallel there as well, but no, it's kind of fascinating.

Merryn Somerset Webb (4:14)

We had a very interesting question on gold. We're going to come back to another time, didn't we?