Circular thinking
Nvidia has struck a $500 billion "deal" with the world's top private credit and equity firms to essentially help them fund the purchases of its chips. It points to plenty of institutional demand still out there for "compute", which Nvidia CEO Jensen Huang on Monday said is now an "investible asset class."
Perhaps. But if you believe the AI boom is built on labyrinth-like foundations supported by increasingly opaque and circular financing, this will probably raise another red flag — the seller is underwriting the buyer’s debt on a huge scale, and hyperscalers are piling another $500 billion on top of the roughly $250 billion already borrowed this year, analysts point out. Whether this matters much, or at all, comes back to a familiar point — will the AI splurge generate the returns needed to justify outlay and borrowing?
CPI on the prize
U.S. rates market pricing right now for the Fed's September meeting is essentially a coin flip, between no change and a 25-basis-point rate hike. The July CPI inflation report to be released on Wednesday morning may go a long way to deciding how the coin lands.
It's an important number. While the Fed bases its 2% annual inflation goal on the PCE index, investors are even more desperate than usual for signposts following Fed Chair Kevin Warsh's remarks and equivocal commitment to the 2% target at his last press conference. Warsh seems reluctant to hike rates, while a growing number of his colleagues on the FOMC are leaning in that direction. CPI on Wednesday, then PCE on August 26.
Re-emerging markets?
Is the exodus from emerging markets over, and if so, does that point to an upswing across EM in the second half of the year? Flows data from the IIF on Tuesday showed that non-residents plowed nearly $19 billion into EM securities in July, snapping two straight months of outflows. But bonds did all the heavy lifting, with $26.7 billion of inflows, against a $7.8 billion equity outflow.
Still, the stock market bleeding was significantly reduced, and the recent deleveraging and repricing across tech-heavy markets like South Korea and Taiwan could tempt investors to rebuild exposure. EM stocks are still handily outperforming DM markets and Wall Street this year, but investors have had to stomach the usual FX risk, and unusually high realized volatility.
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