META MAGSmade the cash-flow debate concrete this Wednesday. Next week, Alphabet and Microsoft report on October 28, followed by Amazon on October 29. The focus now shifts from the size of AI demand to how quickly backlog becomes revenue, how much cash remains after capex and how the next round of spending will be funded. The biggest buyers will be answering those questions while the credit market is charging more for risk.
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000001Monday's China data showed Q3 GDP growth improving to 4.5% from 4.3% in Q2, but September retail sales rose only 1.1% year on year and investment fell 7.2% over the first nine months. Tuesday then brought unchanged one- and five-year LPRs at 3.00% and 3.50%. A better headline growth print has not yet turned into a recovery in domestic spending. That is the improvement the next leg of the China story needs, not simply another stronger output number.
HSIThe recent AI spending story is now working through Chinese internet earnings forecasts. Revenue expectations have held up better than profits as analysts raise investment assumptions and cut earnings estimates. This week's updates continued that pattern while Hang Seng TECH futures fell below their falling wedge. The coming results need to show how that spending converts into earnings and cash; another increase in the investment plan is not the answer investors are looking for.
Z1!The UK's releases moved in opposite directions this week. Wednesday's CPI showed inflation accelerating to 3.5%, with core and services inflation also higher. Friday's retail figures showed a 0.4% monthly fall, although Q3 volumes still rose 0.7%. Next Wednesday's Budget arrives before the BOE's November 5 decision. Fiscal policy now has to confront a consumer slowdown without making the inflation problem harder for the Bank.
NIFTY's recent rebound has faded. Wednesday's RBI minutes, covering the October 5-7 meeting, gave investors no near-term rate-cut relief: policy remained in calibrated tightening, although two members preferred neutral. The debate is about how much more tightening is needed, not the start of an easing cycle. That leaves the recovery without the domestic policy cushion that lower U.S. yields might suggest.
Last week's 3.0% fall in RUT was followed by a 2.0% rebound this week. The Dow also gained 0.4%, while SPX fell 0.5%. Rotation and lower Treasury yields cushioned stocks outside AI.
The main driver of the tech-led selloff is the repricing of credit and AI funding costs. Since August 28, broad U.S. high-yield spreads have widened 80bp and CCC-and-lower spreads 314bp. By October 22, they stood at 340bp and 1,340bp, widening another 9bp and 43bp since the previous Friday even as Treasuries rallied. The assumption that this buildout can keep drawing on cheap capital is breaking down. That is why falling Treasury yields alone have not rescued the trade. Next week's hyperscaler results need to address funding and cash generation, not just demand.
VIX closed the week near 19.5, below the previous week's close, despite Thursday's jump. The pressure is still concentrated in AI rather than a broad index-vol panic. Short-dated protection repriced sharply on Thursday, and the front of the VIX futures curve inverted.
The positioning adjustment is already under way. CTAs have been cutting Nasdaq risk since mid-October, while recent prime-broker data show lower hedge-fund net exposure but still-large gross books and crowded AI positions. Next week's earnings and policy decisions will test the remaining positions.
US02Y Treasuries rallied again, extending the rebound we expected from the lows a few weeks ago. US2Y, US10Y and US30Y fell another 5bp, 9bp and 10bp this week.
September pending home sales fell 7.3% m/m as higher mortgage rates weighed on housing. Bonds are again acting as a hedge against the AI selloff. Higher energy costs have not disappeared, but the growth damage from tight financial conditions is becoming harder to ignore. Next week's Fed decision comes before Thursday's GDP and PCE releases.
USDJPY has pulled back but is holding above 155.56. With core inflation at 2.1% y/y, attention turns to the BOJ's October 30 decision. The BOJ is expected to follow the Fed's lead and hold, with the FOMC very likely to leave rates unchanged on October 28 as the U.S. midterms approach.
