James Brodie
Head of Learning & Development, Flux
US-Iran Deal, Claude & Mythos Fable 5 Suspension, AI Drives Inflation
Tech and metals rally on AI optimism, but rising inflation, debt risks and bubble fears cloud the outlook.
Risk On with the Middle East news, Brent falling $3.8 sends the Nasdaq futures up 3%, while 2-year yields fall 6bp on reduced inflation expectations.
Precious metals also jump, silver +3.5% higher, gold +2.6%
The US government's suspension of Claude Fable 5 & Mythos 5 confirms frontier AI is now a national security asset, not just a growth story. This isn't a TAM collapse - it's the government demanding privileged access before China can copy it. That accelerates the buildout. Markets haven't priced this shift yet.
SpaceX IPO'd the same week at ~90x revenues - peak optimism in one ticker. But with ~$200B in AI IPOs potentially hitting markets this year, 20-year-high Treasury yields, and Gundlach comparing this to DotCom-era "drunken sailor" spending by unprofitable companies, the liquidity math gets complicated fast. Pimco is already flagging a reasserting default cycle in lower-quality credit.
Meanwhile the macro backdrop is quietly deteriorating: AI is driving inflation higher - software prices +14.5% YoY and electronic components +27%, both records. The Middle East news should see temporary relief to the economic concerns. Yet small business hiring intentions just hit a 10-year low outside of 2020. Yet tech funds saw $12.3B in inflows last week alone, the largest since 2017 (Chart, BofA Global Research), and US households now hold 45.8% of financial assets in equities - above the 38.7% peak of the dot-com bubble.
Other signals worth watching: CME launching 24/7 crude and gold contracts, copper hitting an all-time weekly close, BOJ raising rates to a 30-year high of 1%, and solar surpassing coal in US electricity production for the first time.
If you missed out on Friday, the 2X and 3X levered SPCX ETF 's will start trading today (long and short). For gamblers, not investors.
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