Marco Rubio was in India today, and said nearly every country he talks to has a diesel problem. And he said it’s no longer just about the Strait of Hormuz, it's about the attacks on Saudi pipelines, and on refineries in the Russia-Ukraine war.
Europe’s economy runs on diesel. And France is now lining up diesel shipments from Saudi Arabia and the UAE.
So, as we discussed earlier this month, the energy market in Europe is doing the tightening (downward pressure on the economy). And the bond market is beginning to do the strangling (putting pressure on financial stability).
France’s 10-year borrowing cost climbed to more than 1.5 percentage points over Germany’s today. That's the second largest economy in the euro zone paying 150 basis points more to borrow than the largest economy in the euro zone.
It's the widest risk premium to own French government debt since 2012, and that was the height of the European debt crisis. It was default watch. It was the brink of collapse of the European Monetary Union.
Moody’s reviews France’s credit rating on Friday. The French parliament votes on the budget next Tuesday. The ECB meets two days later.
Let's talk about Q3 earnings …
As we get into big tech earnings this week, the market positioning looks a lot like July (early Q2 earnings season).
Going into Q2 earnings, the market sold the AI names, trying to get a head start on a disappointment. Palantir was down 29% on the year going into its Q2 report. Then, the numbers. Revenue grew 93%, profit tripled, and the company raised its outlook.
The negative surprise never came.
Fast forward a few months, and tonight, SpaceX kicked off Q3 big tech earnings. SpaceX gives us a look into both the data center and AI frontier model business.
The numbers: Overall revenue was $14.6 billion, up 161% from a year ago and well above estimates. And the AI business brought in $7.6 billion in the quarter, up 195% from the prior quarter, and up 830% from same period a year ago.
The AI business is now bigger than Starlink.
Tomorrow, we hear from Meta and Tesla. The market is positioned for disappointment again. Remember, in Q2, the selling was about the market position (long, but skittish). The numbers were about the state of the business (very strong).
