After the very impressive performance by financial markets the week before, last week was one of minimal excitement and low volatility. Nothing really changed in the geopolitical world other than media reporting that we've now reached 38 times that President Trump has stated the war with Iran is over, won or nearly finished, since the conflict began. I'm pretty sure the number will be over 40 before the month is out!! 

In the US, interest rates remained near the highest level for years, inflation eased slightly, and major companies continue to report impressive revenue numbers and a profit growth in the region of 50% for the second quarter. These are the highest percentage increases in over six years. The stalemate in the Middle East drove oil prices up once again with the price per barrel above $80. However, with no new meaningful economic or political news, the major US markets lost or gained less than half a percent with a similar story in Europe. The notable weekly increase was driven by Asian markets with the emerging market Index up 2.7% despite drops of over 3% in both Brazil and China. A bounce back in South Korean technology shares was a major reason for the performance and this country’s index recovered some of the previous week's losses jumping some 13% and bringing year-to-date gains back to over 90%.

The news of real concern for Canadians was the announcement that Stellantis is strongly considering closing and selling its assembly plant in Brampton. This move would leave approximately 3000 autoworkers without a job and will have huge negative spillover effects to all the ancillary suppliers. Sadly, I don't think either the provincial or federal governments have a lot of ammunition to stop this from happening.

So, with not a lot of exciting news to report resulting in quiet financial markets, a couple of interesting soundbites to mull over with your morning coffee:

Firstly, on the AI front, we all know companies are spending massively to fund data centers. What isn't getting a lot of reporting is that most of this funding is borrowing and executed through joint ventures with other companies in such a way that the lease commitments don't appear on balance sheets of the hyperscalers (Meta, Amazon Google etc). Goldman Sachs calculates that there is a massive $1.5 trillion of long-term lease commitments already made, of which about $1 trillion does not appear in any of the company's financial statements, however these companies will still be on the hook for the payments. Just another data point to file in the back of one's mind if the revenue from all these data centers doesn't match expectations.

Secondly, I noted above the impressive gains of the South Korean market, a lot of this gain has been driven by speculators using heavily leveraged single stock exchange traded funds of AI related manufacturers, such as chipmakers SK Hynix and Samsung Electronics. The leverage of course helps small investors magnify their bets and it's calculated some $70 billion of retail money flowed into the market earlier this year. This led to some significant losses: following the broad index gaining some 90% from April to July and some of the underlying stocks having even bigger gains, it was followed by a price collapse through the month of July. This led to heavy losses by many retail investors with accompanying media publicity. So, in an effort to protect investors, regulators have tightened restrictions on the products blamed for exacerbating wild swings in one of the world’s most volatile stock markets and the government has mandated that retail investors must now complete a week-long course before they can start trading in single-stock funds,

Dennis