Global markets were already fragile. Big AI bets could break them
Investors flocked to bonds. Yields, which move inversely to price, fell from multidecade highs, with the benchmark 10-year Treasury, which guides borrowing costs globally, falling almost 20 basis points on October 22, its biggest daily fall since early 2023.
Financial markets have been grappling with a multitude of challenges, including ongoing conflicts, elevated sovereign debt, and escalating trade tensions. Japan and France have both experienced declines in bond prices, while emerging-market currencies have weakened. The expansion of spending on artificial intelligence (AI) has bolstered investor sentiment, contributing to record highs in stock markets and forecasts of robust global economic growth.
However, concerns are mounting about the stability of this market. The US government's lenient stance towards business, Trump's erratic trade policies, and the Iran war's energy shock have reignited inflation worldwide, compelling central banks to raise interest rates. The combination of increased capital investment in AI and the high debt levels of governments is causing borrowing costs to soar to unprecedented levels.
With US midterm elections on the horizon, geopolitical uncertainties, and central bank policies promising further volatility, some investors and economists warn that the global economy's risks are increasing. As US inflation has remained above the Federal Reserve's target for an extended period, and the euro-area's inflation rate exceeds its 2% goal, there is growing apprehension that the potential hazards associated with the substantial debt-financed investments in AI could worsen.
Written by urgent.news from Economic Times Tech's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
