Markets were mixed rather than decisively risk-on or risk-off. Technology, semiconductors, Japan and Korea remained strong, but Europe, China, value stocks and small caps weakened, while long-duration bonds sold off sharply and credit came under pressure.
Equities are still holding up despite higher energy prices, rising long-term yields and signs of stress in lower-quality credit.
TOP THEMES THIS WEEK
1. AI investment is increasingly becoming a financing story
Technology companies continue to raise very large amounts of debt to fund AI infrastructure, including a proposed US$60 billion financing package linked to Broadcom and Anthropic-related chip investment. At the same time, investors are demanding wider spreads and larger concessions on AI-related corporate debt than on the broader investment-grade market.
The AI boom is no longer being funded mainly out of corporate cash flows. Rising dependence on debt increases sensitivity to interest rates, refinancing conditions and whether future AI returns justify the scale of investment.
2. Higher yields are starting to create clearer stress outside equities
US long-term bond prices continued to fall this week, with 20+ year Treasuries down 2.3% and almost 6% over the past month. High-yield and investment-grade corporate bonds also weakened, while spreads on the weakest CCC borrowers have reportedly widened sharply.
This is becoming an important divergence. Equity markets — particularly technology — are still resilient, but bond and credit markets are signalling that higher borrowing costs are becoming harder to absorb.
3. The Middle East energy shock is easing, but the economic disruption is not
Persian Gulf oil exports have recovered substantially as producers and shipping companies find alternative routes, reducing the immediate risk of a severe global oil shortage. Brent nevertheless rose another 4% this week and remains nearly 7% higher over the past month, while container traffic and logistics through the region remain badly disrupted.
The distinction is important: the risk of an outright energy shortage may be falling, but higher freight costs, rerouting and elevated oil prices can still keep inflation pressures alive.
4. Economic resilience is complicating the outlook for interest rates
US economic data remain stronger than expected, while Japan’s Tankan survey showed its strongest large-manufacturer confidence in several years. That resilience reduces near-term recession concerns but also gives central banks less reason to reverse policy tightening quickly.
The result is uncomfortable for markets: stronger growth supports corporate earnings, but it can also keep bond yields elevated and delay the relief from lower interest rates that investors had expected.
WATCH THIS NEXT WEEK
US long-term Treasury yields.
The equity market is still absorbing the rise in yields remarkably well, but the divergence is becoming harder to ignore. The S&P 500 is roughly flat over the past month and the Nasdaq remains positive, while long-duration Treasuries have fallen almost 6%.
If yields continue climbing while energy prices remain elevated, the pressure is likely to spread more clearly into equity valuations and corporate credit. A stabilisation in yields would remove one of the largest immediate risks facing markets.
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