Macro Moments Weekly: US AI IPOs may shine like gold in Europe’s gloom

Key takeaways:

1. Services sector collapse points to recession. PMI data showed a sharp drop in service sector confidence across France and the UK—on par with COVID-19 and Brexit—while consumers drain savings to maintain spending.
2. Jobs data will determine the pace of recovery. With job losses "worryingly widespread" and AI expected to curb hiring, any meaningful consumer rebound is unlikely before August at the earliest.
3. US tech mega-listings could deepen the transatlantic investment divide. Potential IPOs from SpaceX, Anthropic, and OpenAI are set to pull global capital toward US equities, leaving already-underweight European investors further behind.

As the first-quarter corporate reporting season draws to a close and mid-year approaches, all investors take stock. What worked? What didn’t? What changes need to be made, in front of the quieter summer season and the vacuum of information thrown up by summer vacations? As such, the impact of statistics at this time of year becomes ever more important.

So, when Nvidia posted 85% growth in sales and is optimistic about its future, yet the stock sold off a little, there was little new to see. When inflation data across Europe was in line with raised expectations, similarly, there was little to see. (We know that there is an inflationary shock coming through, but it may be taking a little longer to materialise.) But when the preliminary Purchasing Managers Index (PMI) data came through last week, it rattled investors!

Manufacturing was weaker than expected in Germany but not elsewhere, as last-minute panic buying at old prices continues. But the speed of the fall in services was both remarkable and widespread, and pointed toward a recession. The collapse of service sector confidence in France and the United Kingdom was similar in magnitude to that during the COVID-19 pandemic and/or Brexit.¹ 

The consumer has gone into survival mode. Additional data in the UK has confirmed that the impact of rising prices has forced the consumer to use savings to prop up spending. This cannot last and these savings will likely be rebuilt. Meanwhile, the UK’s own political vacuum will have not yet impacted these numbers, but fear of rising taxes is back.

These are the facts, but will anything change over the summer lull? Investors are already looking forward and pricing the moment when oil prices drop and normality returns. On the ground, rather than the immediate response in the markets, this is going to take eight to 12 weeks, so not until August at the earliest. Whether the consumer comes out of their survival mode will depend on the job numbers.

Here, the data is once again pessimistic. ‘Job losses are becoming worryingly widespread’, wrote Chris Williamson, Chief Business Economist at S&P Global Market Intelligence.² On top of that, banking CEOs Bill Withers of Standard Chartered³ and Jamie Dimon of JP Morgan made comments about AI reducing hiring, which hardly help.

As for Europe, where the picture looks and feels very different from the United States, the biggest summer investor issue seems to be how much passive funds may be forced to sell to accommodate the listings of Space X and potentially Anthropic and OpenAI.⁴ I suspect that the reality will be different; the demand for these stocks from the widest range of institutional and private investors may well give a boost to equity investment as a whole. It will certainly attract capital from overseas, especially since stocks like these don’t exist elsewhere. Not since the 1850s California gold rush have Europeans been so inclined to ‘go west’. Yet, many Europeans have been and are underweight US stocks today and worried about valuations more than the current impact on performance.

Parting shot

New research into Stonehenge suggests that it was not just a centre for the disparate groups of Neolithic Britons to gather and celebrate 4,500 years ago but also involved competition. That competition could explain why the altar stone, weighting 6.5 tonnes, comes from the Orkney Island in Scotland 430 miles away. Using modern naval calculations, the boat size needed to transport this would have been around 15 meters by five meters, about the size of a small fishing vessel in today’s terms. However, the question is not about the boat but how did they get it on and off the boat? Did the Scots invent cranes?