Monday Digest
Posted 3 November 2025
Faster change, stronger growth, bigger risks
Stocks climbed last week, yet again hitting various new highs although, again ending with a sense of anticlimax. The narratives didn’t change. UK markets did well across the board, reflecting an improving economy.
The US Federal Reserve cut interest rates but warned that a December cut is not a “forgone conclusion”. The rate-setting committee is split between hawks and doves, partly thanks to Trump’s recent appointees. The US government shutdown also means there’s little data to go on (and the available data is mixed) so policymakers rely more on judgement. Job postings are falling, and now layoffs are increasing too (with some high profile tech layoffs). A weaker labour market ahead of the year’s most important retail period could hurt sentiment, so it’s the Fed’s hawkish turn is strange timing. That’s why small caps stocks were poor.
While the ECB kept rates unchanged, its lower inflation forecast means December’s meeting should be interesting. There’s a small chance of a Bank of England cut this week, but a higher chance of a December cut, after the budget.
Trump and Xi’s mini-deal to suspend tariffs and restrictions for a year helped the mood, even if it’s only a pause. Tariff de-escalation allows investors to focus on strong corporate earnings – including for European banks. Tech stocks reported strength, but not enough to boost share prices. Investors are worried about how much they’re spending on AI infrastructure.
More AI spending means less money for shareholders – as discussed below. But even if the AI capex race doesn’t help tech stocks, it should boost global growth. Big companies are investing heavily and shifting resources. There will be losers, but it’s a positive for growth and profits.
That does mean proportionally less money for risk assets, though, which adds to the tightening of global liquidity. Indeed, there was increased attention on the rise in US interbank rates amid comments of (mild) concern from the Fed. That’s why recent volatility could continue, even if the outlook is getting better. The risks could feel riskier ahead.
Renminbi is a power tool
China’s renminbi (RMB) has strengthened against global currencies. The government fixes its currency value against a basket of currencies, but changes its fix depending on the market exchange rates – so the fix is sometimes more about guiding markets. From 2023, currency markets pushed RMB weaker but the fix remained stable. Beijing wanted a stable RMB, but markets didn’t agree, due to weak growth. At points since, RMB devaluation has looked likely, but never came. In 2025, however, Beijing has guided RMB stronger and markets have gone along with it – thanks to signs that China’s economic stimulus is working.
At the same time, China is ramping up RMB’s internationalisation. It’s now world’s second-largest trade finance currency, and third largest payment currency. By guiding RMB higher against the dollar, Beijing is also counteracting the gap in interest rates between the US and China (higher US rates pushes capital to the US). RMB gains are gradual, consistent and it has been the least volatile of any major economy recently, which encourages companies to use RMB for trade and reserves. China is also presenting itself to major trading partners as open and reliable – in contrast to volatile US leadership.
A strong RMB isn’t good for China’s short-term growth. Exports are a huge part of the economy, and have been hit by US tariffs. A stronger currency makes them even less competitive. But it isn’t about growth; it’s about proving RMB’s worth as a global reserve. Beijing sees an opportunity to capitalise on the world falling out of love with the dollar this year. Something similar happened in 2023, when everyone thought RMB devaluation was on the cards but the opposite happened. China gambled that internationalisation was more important than export growth, and it paid off. It would be a brave trader to bet against RMB again now.
Why does tech want private debt?
Meta’s $25bn bond issuance comes just after it was part of a $27bn private debt deal – a joint venture with Blue Owl to build an AI datacentre. It’s part of a splurge of debt-raising from tech firms in 2025, with $175bn raised so far.
Meta’s private deal would have got more attention if it was a public bond. It got an A+ credit rating, but yielded 6.58% at issue – more like a junk bond yield. Trading in secondary markets drove prices up 10% after issue. If this was a public bond, whoever arranged the deal would be embarrassed. The price jump means Meta never had to pay that high interest in the first place. Shareholders don’t like unnecessary payments.
The whole point of public bonds is that lenders compete to give you the best rate, so why keep the deal private? The standard reason is to keep details under wraps but, as a publicly listed companies, Meta has to publish its financial details anyway. We suspect companies will see the deal as an incentive to avoid private credit – which might end the dearth of high-yield corporate issuance this year. We can’t forget private credit’s current PR headache, of course. A high-profile mispriced deal won’t help that mood.
On the flipside, why are AI-related companies issuing so much debt when so many think there is a bubble? We think bubble talk is overstated, and it’s not unreasonable for these cash-rich companies to borrow if they expect AI-fuelled expansion. But the timing is a little strange.
Capital spent building AI capacity is capital not returned to shareholders. Big tech has been using its cash on share buybacks for years, benefitting equity valuations, but that has tailed off as AI investment eats into cash. It’s an interesting trade-off, showing AI growth is no longer the gift that keeps giving.