Macro Moments Weekly: Four seasons in one day

‘There are decades when nothing happens and there are weeks where decades happen,’ Vladimir Ilyich Lenin wrote. This week—let alone this year—has been caught by ‘Lenin’s curse.’ The themes of the market that have unwound so far this year are bitcoin, gold and silver, and then artificial intelligence (AI). In last week’s update, we highlighted that the key to the market’s view of AI would be how it treats the losers. Little did we know that Anthropic would then bust down that door with its latest release and spread fear far and wide across the software sector.

This, happening in a week when both Amazon and Meta announced major increases in their capital expenditures (capex) for 2026, is the ultimate compliment for AI from the markets. Proving a negative has long been the key to discovery because it eradicates an uncertainty and leaves only the outcome. The markets have decided that the outcome is clear and the negative is proved. If you don’t control the data source, you don’t have a future. An analogy would be an art gallery that has stopped buying new material. It’s just a store of old images and has become a museum. It has value, but one that likely diminishes over time.

It is interesting that the question the press has posed on and offline is: ‘When are these stocks cheap enough to buy—when do they offer value?’ That question is based on old assumptions about their business model rather than new assumptions as to its limitations.

In the same way, the market has had to adapt to the new assumptions for the growth model of the hyperscalers and has worried about a bubble and over-valuation. This has helped markets to avoid the valuation excesses of the 2000 dotcom bubble. In 2000, the market failed to see the negatives for publishing and advertising companies. This time the markets have spotted both the positive and negative, which we think shows strong rationality.

Economics

Europe is worrying about employment. According to the sector purchasing managers index,¹ released last week, employment is growing in just two of its 19 sectors, and both of them are financial. This is down from five out of 19 sectors in January, and so it marks a significant deterioration. Notable is the consistent negative in software and services, backing up the markets (‘Saaspocalypse’).

This view has further support from individual country surveys. In Spain, ‘The downshift in sector expansion was closely correlated with an easing of new business growth in January to its slowest level since last June.’² In Germany, ‘The fall in employment was the joint sharpest since 2020, matching that seen last September.’³ In France, ‘The headline index fell from 50.1 in December to 48.4, indicating a modest contraction in output across France’s service sector.’⁴

There have been some positives from Italy and the United Kingdom, where the comment, ‘Improved order books were also attributed to increased digital marketing and investments,’⁵ is a reference to the positive effect of AI.

This highlights a real problem for the European economy. Although the fiscal boost from defence spending and Germany is real and measurable, Europe has few AI skills and fewer AI developments. Europe is reliant on the United States and must subscribe to the models being built there if it is to benefit. With a strong euro hurting exports, the European recovery needs to be closely monitored. If there is any backsliding in either services or manufacturing, interest-rate cuts may be back on the table. Helpfully, we have just had a round of better-than-expected CPI data as well.

The United Kingdom

In the United Kingdom, the revelations about Jeffrey Epstein’s involvement with Labour Party grandee and former US Ambassador Peter Mandelson has severely undermined the prime minister. As such, we have assessed the implications of a change in leadership in our recent commentary. It feels inevitable to us that change is coming.

Parting shot

Investors may feel exhausted by the first five weeks of the year. A remarkable series of events seems to have obscured the reporting season and the economic cycle conditions. This week’s market rotation suggests that the focus is back to fundamentals both negative and positive. What we need to watch for is whether the losses in crypto, gold and bitcoin are creating a margin and liquidity squeeze across more traditional assets.

And markets, in our experience, fall fast and recover slowly.