European Morning Quote - In the Spotlight: Artificial Intelligence

October 27 - Ankur Banerjee's outlook on today's trends in Europe and global markets

The market is basking in the afterglow of the sensational US IPO filing (link) submitted by Anthropic, the developer behind Claude (link), which has boosted investor sentiment and eased pressures from previous debt-fueled artificial intelligence trades (link).

Asian equity markets followed Wall Street’s lead, as investors welcomed Anthropic's (link) filing for a US initial public offering (IPO) on Monday. The release of this highly anticipated filing comes at a time when the scrutiny over massive AI spending is intensifying and concerns about financing are mounting.

This IPO filing didn’t reveal anything we didn’t already know. Eye-popping revenue growth? Yes. Stunning losses? Yes. Risk factors detailing the possible end of the world as we know it (link)? Uh, yes, that too.

Facebook parent Meta Platforms META.O is also in the spotlight, planning (link) to raise a record-breaking $95 billion to expand AI infrastructure. Meanwhile, SpaceX SPCX.O said an affiliate of Apollo Global Management APO.N will buy AI chips and server hardware and lease them to the company as it moves from rocket manufacturing into the AI field, with the deal’s principal amount totaling about $40 billion.

While this fundraising has eased some concerns, it has also heightened worries about the huge capital required for AI infrastructure and the speed at which it can become profitable. Just last week, the cost of default insurance on Meta’s debt (link) hit a record high.

Currently, traders are adopting a risk-on strategy, pushing the KOSPI Index .KS11, which is at the core of the Asian AI boom, up by 3.6%, marking its biggest one-day gain since early September. The index is mostly led by AI chip giants Samsung Electronics 005930.KS and SK Hynix 000660.KS, but it may still end October down by 17%, highlighting ongoing market concerns about the AI sector.

The strong start for risk assets on Tuesday sets the tone for a crucial week, as earnings from AI hyperscalers and major central bank policy decisions this week will determine trading trends for the rest of the year.

Market watchers expect policymakers in New Zealand and Canada to hike rates by 25 basis points, while those in the US, eurozone, and Japan are likely to keep rates unchanged but may signal a possible rate hike in December.

Recently, investors have focused on concerns about artificial intelligence, showing little worry over inflation, and have flocked to government bonds (especially US Treasuries) for safety. This pushed the 10-year Treasury yield below 5%, yet cautionary remarks from central bank officials might also intensify inflation worries.

https://www.reuters.com/graphics/ANTHROPIC-IPO/lgvdbeookvo/chart.png

Main events likely to impact markets on Tuesday:

• France October consumer confidence index

• Novartis earnings report

(To assist non-English speakers, Reuters has automated this report into several other languages. As automated translations may contain errors or lack necessary context, Reuters does not guarantee the accuracy of the automated text and provides it solely for readers’ convenience. Reuters accepts no liability for any damages or losses caused by the use of this automated translation feature.)