Macro Digest
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Main Themes and Market Sentiment
Risk-off: the market has decided 2026 could be peak AI capex, oil is pricing a post-midterm war with Iran, and a Fed that held despite strong data has left bonds, not equities, as the haven.
Peak AI capex. The hyperscaler results turned the AI trade from “who spends most” to “who can pay for it”.
Alphabet missed on ads and EPS (an $8.66bn mark-down, mostly on SpaceX) and posted a second quarter of negative free cash flow; the stock fell 13%. Amazon capex topped $77bn with online stores up only 2%. Microsoft guided 2027 spend to $170bn, below the $189bn S&P had pencilled in. Meta posted its first quarterly cash burn in over a decade, and its 5y CDS hit a record.
Donnelly: “2026 is peak AI capex growth,” and revisions now skew down. Authers: “we have probably passed Peak Capex.” Aurora calls it a K-shape inside the hyperscalers: AI segments boom while legacy businesses stall.
Funding is the pressure point. Megatechs are going cash-flow negative and issuing stock and bonds, and neocloud and Oracle spreads are widening. CoreWeave 5y CDS hit about 1,200bp, and its 2026 capex guidance exceeds its market cap. Lighthouse’s advice: lean against the parts of the AI trade that depend on outside funding.
Texas has paused new data-centre permits; Bloomberg puts about 20% of the US pipeline at risk of delay. In Australia, many of the roughly 23GW of planned data-centre projects have stalled on community opposition.
The Anthropic IPO lands into this. The S-1 shows revenue up about 14x on a year earlier. Damodaran values the equity at about $1.48tn, just below the $1.5–2tn range, and will “sit out the frenzy.”
The breadth story is the other side of it. Equal-weight beat cap-weight by 5.85pt in October, the most since April 2009 (Bespoke). The S&P fell 1.2% on 22 October with over 300 constituents up. The SOX fell 19% in three weeks, and NASDAQ broke the support it had held since August. Donnelly marks a daily close below 28,000 as the start of a bear market and is “scared and flat.”
Oil is pricing war. Brent closed just below $118 on 30 October, its third-highest close of the war, after the WSJ reported the US had told Gulf states to prepare for “a short, intense campaign” against Iran. Brooks says markets now fully price a return to hot war, with oil proxies (the S&P, gold, silver, French spreads) selling off and the dollar and Treasuries acting as havens. He calls the premium excessive and sees EUR/USD back at about 1.20 on de-escalation. Johnston is more cautious: timespreads are easing and specs are selling, so this is a premium-driven market, but buffers are at or below seasonal lows and diesel cracks are about 4x normal. European gas hit €100/MWh and North Asian LNG topped $33/MMBtu.
The midterms (3 November) are the hinge. Donnelly flags the one to two weeks after the vote as the highest-probability window for a US escalation against Iran, and recalls 2018’s 19.6% fall from October to Christmas Eve. Aurora expects Republicans to lose Congress, which it reads as hawkish for the Fed. Bespoke’s history says don’t trade politics.
Bonds have become the haven. The US 10y is back to about 5.0% from a 5.36% peak; 22 October saw the biggest one-day Treasury rally since March 2023. Brooks’ explanation is a new regime: the 10y now falls as oil rises, because euro-area debt stress sends money to Treasuries. Gold has not hedged anything. It fell below $4,000 on forced selling the day real yields dropped (TSCS), and Donnelly calls gold, silver and bitcoin liquidity barometers, not hedges.
Brazil’s Black Monday. Lula beat Flávio Bolsonaro by 3.6pts. The MSCI Brazil ETF fell almost 25% intraday and closed 18% down, and the real’s fall beat the 1999 devaluation day. Trump said the result “looks rigged.” Authers, Variant Perception and Rosenberg all make the buy-the-dip case, with a real policy rate near 9% as the carry cushion.
Policy and Markets...
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© 2026 Stephen Kirchner
Sydney, Australia