(Bloomberg) — European stocks and US equity futures struggled for direction on Tuesday as investors awaited political developments on both sides of the Atlantic. Gold retreated after coming close to $4,000 an ounce.
Futures on the S&P 500 edged lower after the index reached a new record on Monday, fueled by tech stocks riding the artificial intelligence spending boom. The greenback rose against all Group-of-10 peers and Treasury yields inched higher as the US government shutdown dragged on. Bullion climbed to a record $3,977 an ounce before pulling back.
Europe’s Stoxx 600 benchmark dipped, with France’s CAC 40 falling for a second day as President Emmanuel Macron made a last-ditch effort to salvage the government after Prime Minister Sebastien Lecornu’s resignation on Monday. Shell Plc gained after signaling a recovery in the performance of its oil and gas trading operation.
While equities worldwide have surged to successive record highs, worries over the US government shutdown and the political crisis in France have driven investors toward alternative assets such as gold and Bitcoin, sending both to new peaks. At the same time, a flurry of AI-related deals among chipmakers has propelled shares higher and fueled some concerns of a speculative bubble reminiscent of the late-1990s dot-com era.
For Michael Brown, senior research strategist at Pepperstone Group Ltd., worries about a tech bubble are overdone. The Magnificent Seven group of tech giants that have powered the bulk of the S&P 500 rally in recent years are trading at valuations in line with their five-ear averages, he said.
“If you’re now about to tell me that they’ve been expensive for five years, well those seven stocks have delivered a total return of >300% in that period of time, and look set to rally even further in the coming months,” Brown said. “In fact, the path of least resistance for the market at large continues to lead to the upside, as earnings growth remains strong, the underlying economy remains resilient, and as the monetary policy backdrop becomes increasingly loose.”
Monday’s Advanced Micro Devices Inc. deal was the latest big-budget data center agreement this year. It follows last month’s announcement that Nvidia Corp. was planning to invest as much as $100 billion in OpenAI amid demand for tools like ChatGPT and the computing power needed to make them run.
Tech firms are spending hundreds of billions of dollars on advanced chips and data centers, and the final bill may run into the trillions. The financing is coming from venture capital, debt and, lately, some more unconventional arrangements that have raised eyebrows on Wall Street.
In Asia, Japanese shares extended their rally after Sanae Takaichi’s near-certain ascent to become the country’s next prime minister had sent the yen sliding and drove up yields on long-tenor bonds. Chinese and Hong Kong markets were closed Tuesday.
Takaichi’s election shook up global markets Monday with stocks surging on prospects for more spending, while currencies and bonds weakened. The yen held its losses, hovering around the highly watched 150-a-dollar level.
“I think there’s definitely some more room to sell off, but at the same time I think this might be an overreaction,” said Tracy Chen, a portfolio manager at Brandywine Global, on Bloomberg TV.
Options traders are the least bullish on the yen in more than three years now that Takaichi appears in line to become the next prime minister.
Volatility in Japan’s longer-dated government bonds is on the rise following Takaichi’s win, and the moves may spill over to markets as far away as the US and UK, according to Goldman Sachs Group Inc. Demand at an auction of 30-year sovereign bonds, however, was firm enough to calm a jittery market on Tuesday.
What Bloomberg strategists say…
“Japan’s 30-year auction went off smoothly with a higher bid-to-cover ratio than the previous sale, which will be a relief for investors across G-10 long-term debt. A solid auction, but investors won’t get too excited about JGBs until they are certain whether Takaichi will be confirmed as prime minister.”
— Mark Cranfield, MLIV strategist.
Meanwhile, Goldman Sachs Group Inc. raised its gold forecast for December 2026 to $4,900 an ounce, up from $4,300, citing ETF inflows and central-bank buying. According to the latest data, the People’s Bank of China added to its gold holdings in September for an 11th consecutive month.
Such frenzied buying amid a broad decline in the dollar has lifted gold’s gains this year to more than 50%, putting the metal on track for its strongest annual advance since 1979. Investors starting to view gold as a safer asset than the dollar is “really concerning,” said Citadel’s billionaire investor Ken Griffin.
This year, traders have been betting more on gold, silver and Bitcoin, in what’s been called the “debasement trade.” The sudden push to a fresh all-time high in Bitcoin over the weekend has options traders adding to bets that the largest cryptocurrency will rally to $140,000.
Corporate News:
Orsted A/S raised 60 billion Danish kroner ($9.4 billion) through a rights offering that’s critical for the company to tackle the downturn facing the wind-power industry. B&M European Value Retail SA plummeted after the UK discount retailer warned on profit and said it may take as long as 18 months to fix all the company’s “operational weaknesses.” Banco Sabadell SA called on Spain’s securities markets supervisor to impose more disclosure requirements on some investors who accept BBVA SA’s €16.8 billion ($19.7 billion) offer, saying that would help prevent “market manipulation.” Telefonica SA chairman Marc Murtra is conducting a strategic review to kick start growth at the Spanish carrier, with a new strategy to be presented on Nov. 4. Some of the main moves in markets:
Stocks
The Stoxx Europe 600 fell 0.2% as of 9:13 a.m. London time S&P 500 futures fell 0.2% Nasdaq 100 futures fell 0.2% Futures on the Dow Jones Industrial Average fell 0.2% The MSCI Asia Pacific Index was little changed The MSCI Emerging Markets Index rose 0.2% Currencies
The Bloomberg Dollar Spot Index rose 0.2% The euro fell 0.2% to $1.1682 The Japanese yen fell 0.2% to 150.58 per dollar The offshore yuan was little changed at 7.1418 per dollar The British pound fell 0.3% to $1.3443 Cryptocurrencies
Bitcoin fell 1.3% to $123,605.58 Ether fell 0.8% to $4,654.51 Bonds
The yield on 10-year Treasuries advanced one basis point to 4.17% Germany’s 10-year yield advanced one basis point to 2.73% Britain’s 10-year yield was little changed at 4.74% Commodities
Brent crude was little changed Spot gold fell 0.4% to $3,945.37 an ounce This story was produced with the assistance of Bloomberg Automation.
–With assistance from Anand Krishnamoorthy.
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