AFS Markets Blog: Morning 29/10/2026

• Meanwhile in markets, tech trumps the FOMC meeting, which was a boring hold anyway, with Chairman Warsh taking a leaf out of the ECB’s playbook by saying he wants to wait for more data. Oracle, the poster boy for everything that is wrong with over-investment in AI, gave a positive outlook (no pun intended) for free cashflow that calmed plenty of nerves;
• Oracle, whose soaring CDS spread has been in our crosshairs this year, guided for free cashflow to rise to a positive 30 billion dollars in the fiscal year ending in May 2029. According to the wires, consensus had expected that cashflow would still be negative by then. Oracle is at the heart of the AI boom/bubble, morphing itself from a software company to providing massive compute firepower for AI labs;
• Shares of Oracle ended the session yesterday up more than 10%. More importantly, its senior CDS spread, while still very much elevated at 274bps, is a good 50bps off the highs now;
• AI featured prominently in the FOMC meeting and press conference last eve. Chairman Warsh was particularly happy that markets are now differentiating between profitable and loss-making and risky and less risky propositions. Some discipline has returned, though I am not sure I would call it discipline just yet. Warsh called it tightening of financial conditions, but he wouldn’t go so far as saying that they’re tight;
• Warsh was almost Trumpian in his description of the US economy. He called capital investment strong and said that economic growth is strengthening. Inflation is still too high and there were the usual promises of bringing inflation down in a timely manner. Which makes his line that the FOMC prefers to wait for more data all the more puzzling. Warsh doesn’t seem to expect that incoming data will disprove the notion of one or a couple of rate hikes. So, why wait?
• The hawkish resistance to the hold was downright pitiful. Only Fed Governor Cook and Cleveland Fed President Hammack dissented in favor of a hike. The latter is a long-time hawk and a well-known quality. And Cook, who’s the target of Trumpian lawfare, clearly has an axe to grind with the White House. There could have been more dissenters if recent Fed-speak and the September dot plot are any guide. But the hawks decided to stay low;
• In any case, Warsh has teed up a hike for the December FOMC, but in his own, non-overt way. Given the Warsh Fed’s mission to bring inflation down faster, the risk is that we get another hike in January or March. That would put the federal funds rate further above our Taylor rule estimates;
• Turning to some market commentary, US Treasury yields have seesawed on the FOMC. At pixel time, we’re at the lower end of this week’s range. Which, in turn, puts the 10y and 30y at the lowest level in about a month. Despite higher Brent oil and Dutch natural gas futures prices, which are up 12% and 32.5% for the month, respectively. That’s the power of the deflating AI boom/bubble this month, with the twenty stocks on our AI screen down an average 9% for the month (we’re moving off the lows here);
• Asian equities are mixed, with the Nikkei up a percent but with Chinese markets down moderately. The Korean Kospi is down 1.2%. Given the volatility in Korean markets, that’s basically unchanged. S&P 500 futures are flat and in FX space the euro can’t seem to catch a bid.at 1.1137, EURUSD is only marginally above Wednesday’s lows, which in turn was the lowest level in more than a year. EURCHF has barely even started to recover from its France turmoil-induced slump, languishing in the low 0.92s;
• Regarding over night news, keep an eye on Iran following reports in the Wall Street Journal that war-skeptic Vice President Vance reached out to Tehran in a bid to restart peace talks. For the record, Qatari mediators tried to same thing yesterday, unsuccessfully. At the same time, the risk of the war flaring up is increasing. US threats of resuming air strikes after the midterms are too loud and plentiful to ignore;
• Looking ahead, today’s ECB meeting will be a boring and not so hawkish hold. A December quarter point hike is widely expected, but don’t expect President Lagarde to hint at a move. Yes, the tone of the presser will be hawkish. But that’s because the ECB has no choice, given elevated energy prices. Finally, if you’re hoping to hear something about ECB bond buying of France, you’ll be disappointed. If Lagarde says anything, she will simply refer to the statement of the TPI bond buying program announcement from 2022. That makes bond buying very much contingent on an austerity budget and a clear path towards a lower debt-to-GDP ratio. France meets neither criteria. Portugal and Spain do, and they might receive ECB help if there’s real contagion.