AI trade tightened, layoffs spiked, and spirits dampened
The pendulum swing we saw this week in AI was a reminder that the trade is no longer “just invest in anything with a transformer”. The OpenAI commentary on financing, whether through government support or private credit, is a new-frontier argument. These data centres are capital burners, and investors are finally asking: what is the true cost of scale? At the same time, Nvidia's CEO, Jensen Huang made comments that China will win the AI race and then distanced himself from those comments later on X. Energy costs, local subsidies and the speed of regulations do matter. China may not have the talent inflow that America has, but it has the political will to bring in faster capital expenditure. Markets reacted by being choosier: people still love the AI trade, but it’s increasingly selective. The higher-quality names are still well owned, but the lower-quality ones are suddenly being forced to earn their value.
Meanwhile, the most important large-scale data this week was layoffs. October layoffs were the worst for that month since 2003. Technology and warehousing are unwinding the pandemic over-hire binge. And yes, AI is on the list of reasons given for job cuts. Hiring intentions are the weakest since 2011. For the U.S. Federal Reserve, this is the first genuine stress point when it comes to monetary policy: hiring plans matter more than any inflation data, because spending comes from income, not sentiment.
And the strangest twist may be that the consumer is still spending, just not at the bar. Diageo, the alcohol giant, cut its revenue expectations, due to weak demand for spirits, and its stock hit a decade low. Younger people are drinking less, while mature drinkers have simply slowed down volumes. This is not recession panic. It is a multi-year cultural shift toward being healthier. Those consumer staples that are in a position to raise prices without losing demand have held up. Spirits have not. It’s a tough category if consumers are only buying for special occasions.
Looking ahead, next week will bring U.S. inflation data, earnings from Disney and Chinese tech data. This could re-test two narratives: how sticky U.S. disinflation really is, and whether China’s new industrial policy push is showing up in corporate numbers.
Listen to our latest podcast for further insights.
