Early Morning Reid Macro Strategy

Early Morning Reid - Macro Strategy

Key Market Data (Index @ Close // Change) (S&P 500 @ 7807 // -0.06%) (STOXX Europe 600 @ 636 // +0.65%) (iTraxx Crossover @ 311 // +2) (Brent Oil^ @ 106.76 // +1.28%) (10yr Treasury^ @ 5.24 // 4 bp) (10yr Bund @ 3.48 // 0 bp) (Dollar Index^ @ 102.59 // +0.15%) (Further Fed hikes/cuts priced for 2026 @ 27 // 2 bp) (Further ECB hikes/cuts priced for 2026 @ 24 // 2 bp) ^ - Change from previous day's 4:30 GMT to 04:30 GMT

It's a big day for the Deutsche Bank Research Institute as we hold an in-person event today in our London office at noon on what superintelligence will look like and when will we get there? We have a special guest in renowned AI author and commentator Azeem Azhar, founder of Exponential View. This is based around a major new report that Adrian Cox has just published with Azeem on Artificial General Intelligence (AGI). You can find it here at the Deutsche Bank Research Institute. We are fully subscribed for today’s event but if you would like to come, please reach out and we’ll try to find a way to squeeze you in.

Superintelligence may yet wipe out the Reid family as in celebrating my wife's birthday yesterday I discovered via the card he delivered that one of my 9-year-old twins spells mummy with one "m". Meanwhile, despite being on the planet for 52 years, I still can't wrap presents. Every present I give looks as if I don't care at all about the recipient because of the chaotic state of the wrapping. There is nothing I can do about it. It might explain why it took until my late 30s to get married though.

After a quiet start to the week with US bond markets closed yesterday, this morning we've seen a major Asian tech sell-off and later today we'll see the start of the US Q3 earnings season barrage. JPMorgan, Goldman Sachs, Wells Fargo and Citigroup all report today, followed by Bank of America, Morgan Stanley and BlackRock tomorrow. Financials are actually expected to be one of the sectors with the weakest YoY growth so be aware of that as you digest today's results. Overall, our US equity strategists expect S&P 500 earnings growth to remain at a record 34% YoY in Q3, versus consensus at 27%. Their view is that consensus is again embedding too much of a slowdown, leaving scope for another quarter of above-average beats. See their piece here for more. In Europe, the season really kicks off next week and our equity strategists expect earnings growth to reach 25% in Q3, 5 pp above consensus (their full preview is here). So it should be a very strong earnings season on both sides of the Atlantic and indeed across the globe.

Ahead of the onslaught there has been a big sell-off in tech overnight, seemingly on concerns over Chinese AI competition. The sell-off, which began this time yesterday has continued to weigh on the

KOSPI (-6.30%), leaving the tech-heavy index with its largest two-day drop (-9.79%) since July, back when a reassessment of the AI trade was the key theme in equities. The Nikkei 225 has also come back from a long weekend in Japan with a -2.21% loss.

The catalyst for the latest AI-driven sell-off came after the South China Morning Post reported yesterday morning that China’s CXMT memory chipmaker had made good progress on new DRAM architecture that would boost memory density. So that led to a fall in several memory makers, including the likes of Micron (-3.88%) yesterday, and South Korea’s Samsung (-7.98%) and SK Hynix (-8.72%) this morning. In fact, the Philly semiconductor index fell for a 4th consecutive session yesterday, which is the first time that’s happened since July. Nasdaq (-0.79%) futures are lower this morning with both the S&P and Stoxx equivalents down a more measured -0.19%. 10yr US yields are down -4.6bps after being closed yesterday.

Turning to the rest of yesterday’s developments now, it was a relatively different picture, with most equities advancing despite a rise in oil and gas prices. That came as markets digested the weekend news that the Houthi militants had bombed Riyadh’s airport, along with lingering uncertainties around some kind of energy ceasefire between Russia and Ukraine. Yet despite all that, the S&P 500 (-0.06%) ended the session…