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Nomura cross-asset strategist Charlie McElligott proposed the judgment that the market is rapidly repricing left-tail risk, with the driving force shifting from the inflation narrative to a systemic revaluation of AI-driven growth prospects, and with long-duration Treasury positions once again serving as a hedge for equity portfolios. His report noted that overnight the 10-year Treasury yield plunged more than 15 basis points in a single day, at one point falling below 5.00%, the Nasdaq fell 2.60%, and the Philadelphia Semiconductor Index fell 6.72%; he attributed the root cause of the selloff to a rethink of the AI trajectory, and mentioned that Anthropic's annualized recurring revenue data disappointed the market, that Gartner warned more than 80% of emerging cloud service providers face bankruptcy, and that Meta's CDS spread widened from 80 basis points on July 29 to 120 basis points on October 22. An October 24 report further stated that McElligott pointed out that hyperscale cloud providers' AI capital expenditure is caught in a dilemma: continuing to accelerate would put pressure on free cash flow, while a substantial slowdown would mean that AI demand and earnings expectations have failed; in the most violent single-day selloff of the past week, 47 of the 124 US equity long-short pairs monitored by Nomura moved more than 3 standard deviations, and 6 moved more than 5 standard deviations, while over the past two weeks CTA trend strategies have closed out about $68 billion in Treasury futures shorts and $38 billion in short-term interest rate futures shorts.
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Nomura: AI capex caught in a dilemma—accelerating pressures cash flow, slowing means the growth story breaksDevelopments
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Nomura strategist says the market is rapidly repricing left-tail risk
Source:Wallstreetcn
Reports and discussion timeline
Browse reports and discussion by time. Their evidence levels remain distinct.
Oct 24
Wallstreetcn
Nomura: AI capex caught in a dilemma—accelerating pressures cash flow, slowing means the growth story breaks
Charlie McElligott, cross-asset strategist at Nomura Securities, pointed out that hyperscale cloud providers' AI capital expenditure has fallen into a dilemma: continuing to accelerate will pressure free cash flow, while a substantial slowdown would mean AI demand and earnings expectations break down—both paths point to AI assets being sold off. In the most violent single-day selloff of the past week, 47 of the 124 US equity long-short pairs monitored by Nomura moved more than 3 standard deviations, and 6 moved more than 5 standard deviations; over the past two weeks, CTA trend strategies have closed about $68 billion of US Treasury futures shorts and $38 billion of short-term interest rate futures shorts. Next week, earnings from Google, Amazon and Microsoft and the Federal Reserve's policy meeting will test the market's direction.
Oct 23
Huxiu
AI capex panic pushes down US Treasury yields, market lowers expectations of Fed rate hikes
The AI capex panic triggered a plunge in US Treasury yields, with the 10-year Treasury yield falling 19 basis points in a single day, the largest one-day drop since the Silicon Valley Bank crisis in early 2023, and the market now sees a 24% probability that the Fed will not raise rates this year. After Meta gave guidance that capex would require "hundreds of billions of dollars," its stock fell nearly 7%, CoreWeave dropped 10%, and credit spreads across the computing infrastructure sector widened across the board. The article argues that the Fed faces a dilemma between fighting inflation and avoiding pricking the AI bubble, while international oil prices hitting their highest level since 2008 provide ammunition for the hawks.
Wallstreetcn
AI sell-off triggers growth fears, Fed rate hike expectations pushed back to January next year
The 10-year US Treasury yield fell 19.3 basis points in a single day to 4.952%, the largest single-day drop since the Silicon Valley Bank crisis in March 2023, and full pricing of a rate hike in federal funds rate futures shifted from December to January next year. The article attributes this round of volatility to three triggers occurring simultaneously: AI earnings season performance falling short of the market's implicit expectations, the French 10-year government bond yield rising intraday to 5.142% with the France-Germany spread widening to more than 170 basis points, and Houthi attacks on Saudi Aramco oil fields pushing Brent crude back above $112 per barrel. Nomura strategist Charlie McElligott said bonds are regaining their hedging function, and the market is repricing in real time the probability of a US growth scare brought about by the AI reset.
Wallstreetcn
Nomura: AI growth panic replaces inflation narrative, US Treasuries regain hedging function
Nomura cross-asset strategist Charlie McElligott noted in a report that the market is rapidly repricing left-tail risk, with the driver switching from the inflation narrative to a systemic revaluation of AI-driven growth prospects, and US Treasury duration positions once again serving as an equity portfolio hedge. Overnight, the 10-year US Treasury yield plunged more than 15 basis points in a single day, briefly falling below 5.00%, the Nasdaq fell 2.60%, and the Philadelphia Semiconductor Index fell 6.72%. He attributed the root of the selloff to a rethink of the AI trajectory, and mentioned that Anthropic's annualized recurring revenue data disappointed the market, Gartner warned that more than 80% of emerging cloud service providers face bankruptcy, and Meta's CDS spread widened from 80 basis points on July 29 to 120 basis points on October 22.