The current phase of earnings reporting has marked a shift in the paradigm. Confidence in the productivity growth promised by AI has started to falter. Investors have started to demand something the market spent two years deferring: profit. They have realised that the unprecedented Capex on AI by companies needs to be paired with a semblance of ROI otherwise the promised future earnings can no longer be justified. This leaves the MAG 7, particularly the hyperscalers, in a pre

I have argued that the market had stopped taking AI capex on trust and started demanding a return on it. That argument was about equities. It has since migrated into the bond market, and it has arrived at an awkward moment. On 18 August the US 30-year Treasury yield touched 5.336%, its highest since 2007. French borrowing costs hit their highest since 2008, the 30-year Bund its highest since 2011, the 30-year gilt is flirting with 6% and the Japanese 40-year set a record 4.35

The United Kingdom has arrived at the least forgiving combination available to a central bank. The labour market is shedding jobs on almost every measure that can be trusted. Inflation has stopped falling and turned back up. And the gilt market has made it clear it will not fund a fiscal response. This is not stagflation in the 1970s sense where nominal wage growth is decelerating and services inflation is still coming down, but it is a version of the same trap, and it explai

There is a strange disconnect running through American markets this summer. The S&P 500 has spent August printing record after record, carried almost entirely by the AI infrastructure trade, while nearly every hard data release covering the real economy has come in soft. Payrolls contracted. Housing starts collapsed. Builder confidence has now spent longer below the neutral line than at any point since 2012. And yet the index keeps climbing, and the long end of the Treasury c