Tech it to the limit

Making sense of the forces driving global markets

By Jamie McGeever, Reuters Open Interest Markets Columnist 

U.S. stocks mostly fell on Wednesday, slammed by worries that the artificial intelligence revolution could pose an existential threat to businesses across many sectors, while oil rose sharply on reports that planned US-Iran talks may collapse.

More on that below. In my column today I look at the recent wild ride in gold, which has seen the biggest one-day price drop since 1983, biggest rise since 2008, and highest volatility on record. This isn't what buyers of the world's safest asset signed up for, is it?

I'd love to hear from you, so please reach out to me with comments at jamie.mcgeever@thomsonreuters.com. You can also follow me at @ReutersJamie and @reutersjamie.bsky.social. 

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* AI clouds darken

AI optimism is turning to disruption fear. U.S. and world markets are sliding on growing concern that artificial intelligence will have a significantly detrimental impact on a range of software-intensive businesses, from finance to law and coding. 

The idea that AI's rising tide will lift all boats is evaporating. Investors will have to pick winners and eschew losers, and determine where AI will enhance and where it will disrupt. As this is a brave new world, it's really a guessing game. The only certainty? More volatility. 

* Global growth tracking 3%

It's not just the U.S. - the latest PMI figures from around the world show business activity has got off to a solid start this year. Manufacturing, in particular, is accelerating, and strong new orders suggest this momentum can be sustained.

There are pockets of concern, namely sluggish employment and high prices, and Europe is under-performing. But overall, output is holding up well and is consistent with global GDP growth of 3.0%, according to JP Morgan economists. That's decent.

* Fed dove clips own wings

Fed Chair Jerome Powell reiterated last week that no one on the rate-setting FOMC has a rate hike as their next move "base case". But the hard growth and activity data, financial conditions, and above-target inflation all suggest further easing shouldn't really be anyone's base case either.

To be sure, markets aren't contemplating a hike at all, and rates futures pricing still implies two 25 bps cuts this year. But if arch-dove Governor Stephen Miran is softening his stance a bit, calling for 100 bps of cuts this year rather than 150 bps a month ago, how close might the FOMC consensus be to flipping? 

Gold's historic price swings and record volatility are hardly hallmarks of the ultimate safety play. This is not what investors, including central banks, signed up for.

Gold is essentially a cumbersome rock with high storage costs that pays no yield. But it's also long been considered the world's safest asset, attracting buyers seeking a store of value, a hedge against inflation, a haven during periods of volatility, portfolio diversification or a mix of all four. 

But the extraordinary price moves of late call these assumptions into question. 

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