Wednesdays child is full of woe.

An interesting article in yesterday’s Financial Times suggests that fixed-income investors are becoming more discerning when allocating investments into the new digital age. The premium in yields that investors are demanding to buy AI-related debt relative to Treasuries has climbed by 0.78 % points in recent weeks, according to a report by Merrill Lynch. To give an understanding of the scale of investment required, JP Morgan estimates that building AI infrastructure will cost over 5 trillion dollars and “will likely require participation from all areas of credit”, public and private. One recent example of the demand for credit is Meta’s $27 billion private debt deal arranged last month to fund the development of its Hyperion data centre. One can go on, and the article provides further examples of the level of credit that has been extended to hyperscalers over the past few years.

The article is noteworthy, rather than implying an imminent collapse in the credit markets for AI-related investments. It may be a positive development that credit markets are becoming more discerning in their lending practices and are just demanding a slightly higher return for the risk. Obviously, if the trend continued and spreads widened further, equity markets would start to fret, and they would then begin to question once again the long-term expected returns if the cost of investment continued to rise.

Although equity markets bounced back on expectations that the Federal Government was about to reopen, as there seemed to be light at the end of the tunnel between the Democrats and Republicans. The two parties, as usual, were happy to engage in brinkmanship, while markets largely ignored the shutdown. As markets began to show signs of stress and raised questions about the potential economic impact if the standoff continued for a while longer, the two parties started to compromise.

 It was interesting that the recovery this week has not been led by the tech sector, as the Nasdaq index has lagged behind the broader S&P 500. The period of consolidation may not be over, but we could be in a period of rotation away from tech into more value-related sectors. Healthcare and consumer staples have outperformed discretionary and tech in the past week. Again, yesterday, the best-performing sector was healthcare, and the worst was technology.

As we all wait with baited breath for what Ms Reeves has in store for us in the coming weeks, today’s employment report will not have made happy reading for the Chancellor. The jobless rate across the country rose from 4.7% to 5% in the period July to September, as salaries continued to rise above the inflation rate. So it continues with fewer people receiving higher pay. It appears that hospitality and retail are the sectors most severely impacted. The most concerning and saddest aspect of this report today is the proportion of unemployed 18- to 24-year-olds, which is at its highest in a decade. Ms Reeves, you have your work cut out for you in a few weeks. The Bank of England will have to cut rates in December, one feels.