Central bank body BIS raises concerns of gold and stocks double bubble

Economic

Summary:

The BIS warns gold and stocks are surging together for the first time in 50 years, signalling possible dual bubbles amid heavy central-bank buying, retail inflows, AI risks, and rising market fragility.

The combination of gold and share prices soaring in unison is a phenomenon not seen in at least half a century and raises questions of a potential bubble in both, global central bank umbrella body, the Bank for International Settlements, says.

While equity markets continue to be driven by AI and tech gains, gold's 60% surge this year is set to be its biggest since 1979, fuelling debate about whether its traditional role as a safe-haven asset has changed.

"Gold has behaved very differently this year compared to its usual pattern," Hyun Song Shin, Economic Adviser and Head of the Monetary and Economic Department at the BIS said as it released its final report of the year on Monday.

"The interesting phenomenon this time has been that gold has become much more like a speculative asset."

Dubbed the central bank to the world's central banks, the BIS has given regular warnings about potential stock market bubbles in recent years, but its concern around the co-movement with gold is two-fold.

Where would investors shelter if stocks and gold both crash. And what could it mean for central banks and other reserve managers given some have been heavy buyers of gold.

The BIS' analysis concluded that this year has been the first time gold and the S&P 500 have jointly exhibited "explosive behaviour" in the last 50 years.

Not only is gold up 60% this year, it is up more than 150% since 2022 when the post-COVID pandemic surge in inflation began to impact markets, alongside Russia's invasion of Ukraine and subsequent Western sanctions on Moscow.

Another possible bubble warning sign is that retail investors have also been piling in.

Gold exchange-traded fund (ETF) prices have been consistently trading at a premium relative to their net asset value (NAV) this year, signalling "strong buying pressure coupled with impediments to arbitrage," the BIS said.

Central banks' purchases have "clearly set a very firm tone in the price of gold," Shin added.

"Whenever you have prices actually doing quite well, you will see other investors jumping in, and certainly retail investors have also taken part (in the rally), and not just in gold".

GROWING FRAGILITY

The BIS gave a broader warning too about the "growing fragility" of the risk-on environment amid the concerns about artificial intelligence (AI) valuations and the recent 20% dives in cryptocurrencies like bitcoin.

The European Central Bank and Bank of England have both raised their own AI bubble concerns in recent weeks and the risk of an abrupt burst if investors' rosy expectations are not met.

Shin said the profits being made by the AI firms - now spending enormous amounts on data centers - was an important difference between now and the "dotcom bubble" of the early 2000s when firms weren't making money.

The "fundamental question", however, is whether those expenditures will be seen as being justified in the long run, Shin said, adding that the other key determinant for markets will be how the global economy holds up next year.

"So far, activity has been surprisingly resilient," Shin said.

The BIS is also watching where the dollar goes from here. This year it is headed for its biggest annual drop since the Lehman Brothers collapse in 2007.

"After the April episode (when U.S. President Donald Trump announced sweeping trade tariff plans), the dollar has been relatively stable," Shin said.

"I think the hedging behaviour of non-U.S. investors is going to be a very, very important input into how markets will co-move from here."

Source: reuters

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James Whitman

Political

● Spy chief speaks after U.S. strategy that is critical of Europe

● Says US strategy shows need to review alliances, boost Europe cooperation

● Europe must foster alternatives to U.S. tech like Palantir

There is no need for a rupture between Europe and the U.S. over Washington's new Security Strategy warning of "civilizational erasure" in the Old World, Germany's spy chief said on Monday.

In the new document, unveiled late last week, the Trump administration upends postwar assumptions about Europe's close relationship with the United States and takes European countries to task for continuing to rely heavily on the U.S. for their defence. Reuters reported on Friday that Washington wants Europe to take over the majority of NATO's conventional defence capabilities, from intelligence to missiles, by 2027.

"I would not draw from such a strategy the conclusion that we should break with America," Sinan Selen said at an event in Berlin, "and I also do not believe that our partners will break with us."

"But one important point is that we naturally have to continually review our alliances and further develop them, and that applies in particular to European networking."

Europe needs to become more independent overall, including in its security architecture, Selen said, alluding to concern over reliance on U.S. technology.

Europe "must be able to generate alternatives" for example to the crime-fighting software of CIA-backed Palantir Technologies (PLTR.O), opens new tab so it could then select the best solution, taking into account geostrategic considerations.

"We have industries and companies that can do these things. Perhaps they simply need more support," he said.

German security services also need expanded digital surveillance powers to better unmask people hiding behind fake profiles, map their online networks, and analyse their communications, before anything happens, said Selen.

The government is already working on this, he said.

"Other partners — I look specifically at France and the Netherlands — are far ahead of us in this regard," said Selen.

Germany has traditionally maintained some of the strictest data-privacy protections in Europe, shaped by its history of two dictatorships in the 20th century.

Source: Reuters

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Adam

Economic

The wave of capital pouring into artificial intelligence infrastructure is far from peaking, said Ben Powell, chief investment strategist for APAC at BlackRock, arguing the sector’s “picks and shovels” suppliers — from chipmakers to energy producers and copper-wire manufacturers — remain the clearest winners as hyperscalers race to outspend one another.

The surge in AI-related capital expenditure shows no sign of slowing as tech giants push aggressively to secure an edge in what they see as a winner-takes-all contest, Powell told CNBC Monday on the sidelines of the Abu Dhabi Finance Week.

“The capex deluge continues. The money is very, very clear,” he said, adding that BlackRock is focused on what he called a “traditional picks and shovels capex super boom, which still feels like it’s got more to go.”

AI infrastructure has been one of the biggest drivers of global investment this year, fueling a broader market rally, even as some investors question how long the boom can last.

Nvidia, whose GPU chips are the backbone of the AI revolution, became the first company to briefly surpass $5 trillion in market capitalization amid a dizzying AI-fueled market rally that sparked talk of an AI bubble.

Microsoft and OpenAI also reached a restructuring deal in October to support the ChatGPT developer’s fundraising efforts. OpenAI has reportedly been preparing for an initial public offering that could value the company at $1 trillion, according to Reuters.

The build-out has set off long-term procurement efforts across the tech sector, from chip supply agreements to power commitments. Grid operators from the U.S. to the Middle East are racing to meet soaring electricity demand from new data centers. Companies, including Amazon and Meta, have budgeted tens of billions of dollars annually for AI-related investments.

S&P Global estimates data-center power demand could nearly double by 2030, mostly driven by hyperscale, enterprise and leased facilities, along with crypto-mining sites.

‘Dipping toes into credit market’

Powell also noted that leading tech firms have only begun to tap capital markets to fund the next phase of AI expansion, suggesting additional capital is on the way.

“The big companies have only just started dipping their toes into the credit markets… feels like there’s a lot more they can do there,” he said.

The “hyperscalers” are behaving as if coming second would effectively leave them out of the market, Powell said. That mindset, he added, has pushed firms to accelerate spending even at the risk of overshooting.

Much of that capital, Powell noted, is likely to flow to the companies powering the AI build-out rather than model developers, reinforcing a growing view among global investors that the most durable gains from the AI boom may lie in the hardware, energy and infrastructure ecosystems behind the technology.

“If we’re the recipients of that cash flow, I guess that’s a pretty good place to be, whether you’re making chips, whether you’re making energy all the way down to the copper wiring,” Powell noted, expecting “positive surprises driving those stocks in the year ahead.”

Source: cnbc

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Adam

Economic

After consternation about whether the Federal Reserve will cut interest rates for a third time this year, the consensus is that the central bank will likely go ahead with a 25-basis point cut on Wednesday — even if it's a split decision.

“This is a hard call,” said Alan Blinder, former vice chair of the Fed and economics professor at Princeton. “[But] I do think it’s more likely they cut than not… It wouldn’t surprise me if this is a 'hawkish cut.'"

That is to say, a rate cut this week could come with a caution to markets not to expect the Fed to keep cutting meeting after meeting. Blinder said he also thinks there could be dissenters on both sides of the interest rate decision, given existing divisions within the committee.

Luke Tilley, chief economist for Wilmington Trust, who also thinks the Fed will cut rates Wednesday, predicted Fed Chair Jerome Powell will frame a rate cut the same way he did at the last press conference: by emphasizing differing opinions over further rate cuts and cautioning against assuming that the central bank will continue to cut.

Ahead of this week’s meeting, a handful of Fed officials have made the case that there is not a strong need to cut rates given concerns about inflation, which remains a full percentage point above the Fed's 2% target. Those include Boston Fed president Susan Collins and Kansas City Fed president Jeff Schmid.

Chicago Fed president Austan Goolsbee has also expressed hesitation about "frontloading" too many rate cuts, citing inflation. On the flipside, New York Fed president John Williams, vice chair of the Federal Open Market Committee and a member of Fed leadership, strongly signaled a few weeks ago that he could support a rate cut.

“I still see room for a further adjustment in the near term to the target range for the federal funds rate, to move the stance of policy closer to the range of neutral,” Williams said on Nov. 21.

To some Fed observers, that comment alone moved the odds.

“The vice chair, John Williams, usually doesn't strongly signal that much in a speech unless he has the Fed chair's endorsement,” said Loretta Mester, former president of the Cleveland Federal Reserve. “So my view is they're going to go ahead with another 25-basis point cut in December.”

While Mester says she thinks the Fed is not necessarily wrong to cut rates, she would not support it at this point and would want to see how the economy is faring at the beginning of next year, then course-correct if needed.

“I don't really see a compelling case to cut this time, other than the fact that it was in the interest rate projections from September,” she said. “I think it's more expeditious than a good economic argument.”

Blinder cautioned that if the central bank cuts rates again this week, policymakers risk making it harder to pull inflation down.

Blinder says, “we may be” at risk of unleashing persistent inflation if the Fed continues to cut rates.

“The question is whether we're there right now,” he said. “I think we may be.”

What the available data says

The release of inflation data continues to be delayed due to the government shutdown that ran for all of October and into November. The latest reading of the Personal Consumption Expenditures index, the Fed’s preferred inflation gauge, was released with a two-month lag. For September, on a “core” basis excluding food and energy prices, inflation increased 2.8% in September, down a tenth of a percentage point from August. Fed officials expect inflation to end the year at 3.1%.

A stronger-than-expected — albeit stale — September jobs report showed payroll growth bounced back in September with 119,000 jobs added, compared with a loss of 4,000 for the month of August. That contributed to a volatile trend where job creation turned negative in June, increased in July, decreased again in August, and rebounded again in September.

A more recent anecdotal reading on the job market from the Fed’s Beige Book showed that in the first two weeks of November, layoffs ticked up, employers were implementing hiring freezes, and adjusting workers' hours. A few firms noted that artificial intelligence replaced entry-level positions or made existing workers productive enough to curb new hiring.

Fed officials will receive more real-time data releases the week after their meeting.

Looking ahead to 2026

Fed observers will be watching this week to see what officials signal about the future path of policy. Powell will hold his usual post-meeting press conference, and policymakers will unveil their latest quarterly projections for interest rates, which will include the outlook for 2026.

“I'm hoping that he'll give sort of a narrative about really how they're thinking about the economy,” Mester said.

She said she would take a cautious approach to further rate cuts because she sees inflation being driven not just by tariffs — which she considers one-time price increases — but also in the price of services.

While the Fed is trying to cushion against deterioration in the job market, Mester said she believes much of the softening is due to longer-term changes the Fed can’t control, such as shifting immigration policy that’s resulting in a smaller pool of workers. At the same time, she acknowledged weakening due to uncertainty over tariffs and firms wanting to protect their profit margins from tariffs, as well as the cost of labor.

“So you kind of have this sort of almost stasis in the labor market, and I'm not sure cutting interest rates does anything really to help that,” she said.

Wilmington Trust’s Tilley, however, predicted three more cuts at the next three Fed policy meetings because he thinks the job market is weakening and expects it to weaken further.

Tilley estimated that 154,000 government workers who took buyouts, dropping off payrolls in October, could boost the unemployment rate for November by nearly a tenth of a percentage point to 4.5%. He also noted that outside of healthcare jobs, private-sector job growth has been negative, according to BLS data.

“There are the federal employees, and you've also got new entrants to the labor force who are having a hard time finding jobs,” Tilley said. “So, it all comes together to reflect a very weak labor market.”

Aditya Bhave, senior US economist at Bank of America, projected two more cuts next June and July, not because the economy will need it, but because of a new chair of the Fed. That would leave rates in a range of 3.0 to 3.25%.

“Our forecast of additional cuts next year is due to the change in leadership, not our read on the economy,” said Bhave. “In fact, by cutting rates next week, we think the Fed would increase the risk of pushing policy into accommodative territory, just as fiscal stimulus kicks in.”

Amir Bagherpour, global managing director for Accenture, is predicting the Fed will cut rates one or two more times next year after cutting this week. That outlook assumes inflation as measured by core PCE will range from 2.5%-2.7% next year; GDP will be in the range of 1.5-1.8%; the unemployment rate will end next year in the range of 4.4-4.6%; and monthly jobs growth will average 75,000-125,000.

Fed officials will release new projections for inflation, GDP, and unemployment on Wednesday.

Source: finance.yahoo

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Winkelmann

Political

Economic

UK homes worth more than £2 million ($2.7 million) could drop about 5% in value next year as the market adjusts to a so-called mansion tax, according to forecasts from Hamptons.

The broker said it expected these homes — most of which are in London — to see a "one-off adjustment" in 2026 based on price reductions that factor in a new levy coming into force in April 2028. Chancellor of the Exchequer Rachel Reeves last month unveiled a tax on homes valued at more than £2 million, with a surcharge starting at £2,500 a year and rising to as much as £7,500.

A 5% price correction would be the largest annual drop in values since 2009 for homes that have maintained a value of more than £2 million during those years, according to Hamptons' data. The broker said it expected London to be the only region in Britain to see house prices fall in 2025, predicting a 0.5% decline in the year compared to growth of as much as 5% in other regions.

"It's hard to ignore the growing drag of taxation and politics," Aneisha Beveridge, head of research at Hamptons said in a report. London "is being held back by higher stamp duty and broader tax anxieties, locking some owners into their homes and others out of buying them."

The housing market has endured disruption partly caused by hikes to stamp duty and the abolition of a system that allowed wealthy foreigners, or so-called non-doms, to avoid UK taxes on their overseas earnings. The changes have disproportionately impacted activity in London, where the market has also been affected by fiscal worries, as Labour raises revenue to pay for higher public spending.

The new mansion tax targets less than 1% of all properties in England. However, most homes worth more than £2 million are in London, where property agents are warning the tax could amplify turbulence in the city's market.

London's already weak house price growth is set to significantly trail the rest of Britain for at least the next two years. Hamptons predicts London will be the only region to not see house prices rise next year, and says it will lag behind other UK regions in growth by as much as roughly 16 percentage points between 2024 and 2028.

The broker expects house prices to rise by 2.5% across Britain in 2026, followed by 2% growth in 2027 and a further 1.5% in 2028. It said political uncertainty will become a more prominent driver of property sentiment in 2028 — the year before the next planned general election.

Based on market views on interest rates, the base rate could move further downwards next year and "settle" at about 3.25% at the end of 2026, Hamptons said. This should increase Britons' chances of securing mortgage deals below 4%, it added.

"Inflation is easing, mortgage rates are falling, and affordability is improving," Hamptons' Beveridge said. "At the same time, the balance of power is shifting: the Midlands is forecast to have seen more price growth than London since prices bottomed out after the 2008 financial crash."

Source: Bloomberg Europe

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Justin

Political

Thailand said its fighter jets struck Cambodia on Monday in an attempt to cripple its military capability, as a re-eruption of border hostilities derailed a fragile ceasefire brokered by U.S. President Donald Trump.

Each side blamed the other for starting clashes that broke out during the night and intensified before dawn and spread to multiple locations, with one Thai soldier and four Cambodian civilians killed, according to officials.

Cambodia accused Thailand of "inhumane and brutal acts" of aggression, stressing it had not retaliated, while Bangkok said it carried out air strikes on military targets after its neighbour mobilised heavy weaponry and repositioned combat units.

"The objective of the army is to cripple Cambodia's military capability for a long time to come, for the safety of our children and grandchildren," Thai army chief of staff General Chaipruak Doungprapat said, according to the military.

The fighting was the fiercest since a five-day exchange of rockets and heavy artillery in July that marked their heaviest clashes in recent history, when at least 48 people were killed and 300,000 displaced before Trump intervened to broker a ceasefire.

'THERE WILL BE NO TALKS' SAYS THAI PM

Tensions have simmered since Thailand last month suspended de-escalation measures that were agreed at a summit in Trump's presence, after a Thai soldier was maimed by a landmine that Bangkok said was newly laid by Cambodia.

Some of the mines that have wounded seven Thai soldiers since July were likely newly laid, Reuters reported in October, based on expert analysis of material shared by Thailand's military.

Cambodia has denied laying the mines and Thailand has said it will not implement the ceasefire terms until Cambodia apologises.

Thai Prime Minister Anutin Charnvirakul on Monday said his government would do whatever necessary to protect its territorial integrity and would not engage in dialogue with Cambodia.

"There will be no talks. If the fighting is to end, (Cambodia) must do what Thailand has set," he said, without elaborating.

Cambodia's defence ministry said its forces came under sustained attack but were committed to the ceasefire and did not retaliate.

"Cambodia calls on the international community to strongly condemn Thailand's violations ... as well as demands that Thailand take full responsibility for such brazen acts of aggression," it said in a statement.

Thailand's army said Cambodia used drones to drop bombs on Thai bases and fired truck-mounted BM-21 rockets towards civilian areas.

A Thai military official told Reuters targets of air strikes included long-range Chinese-made rockets.

The U.S. embassy in Thailand did not immediately respond to a request for comment on the unrest. Malaysian Prime Minister Anwar Ibrahim, chair of the regional bloc ASEAN who helped Trump broker the truce, called for calm and for communication channels to stay open.

"The renewed fighting risks unravelling the careful work that has gone into stabilising relations," Anwar said in an X post.

This map shows locations of military clashes along the disputed border between Thailand and Cambodia.

'EXPLOSIONS...BOOM BOOM'

Cambodia's former longtime leader Hun Sen, the influential father of current premier Hun Manet, said Thailand's military was seeking to provoke a retaliatory response.

"All frontline forces must remain patient because the aggressors have been firing all kinds of weapons," he said on Facebook.

Thailand evacuated 438,000 civilians across five border provinces and authorities in Cambodia said hundreds of thousands of people had been moved to safety. Thailand's army said 18 soldiers were wounded and Cambodia's government reported nine civilians injured.

In Cambodia, bottlenecks of trucks and cars formed on country roads and streams of motorcycles and farming vehicles were leaving border areas, local television showed. A verified eyewitness video showed a plume of smoke rising after a Thai airstrike.

Thai television showed footage of people packed into evacuation camps and others sheltering in bunkers or large concrete water pipes, and the military released a video of what it said was exploding Cambodian artillery.

Phichet Pholkoet, a resident of Thailand's Ban Kruat district bordering Cambodia, said he had heard gunfire since early morning.

"It startled me. The explosions were very clear. Boom boom!" he said via telephone. "I could hear everything clearly. Some are heavy artillery, some are small arms."

BITTER HISTORY

The use of fighter jets demonstrates Thailand's military advantage over Cambodia, with an armed forces that dwarfs its neighbour in terms of personnel, budget and weaponry.

Thailand and Cambodia have for more than a century contested sovereignty at undemarcated points along their 817-km (508-mile) land border, with disputes over ancient temples stirring nationalist fervour and occasional armed flare-ups, including a deadly week-long artillery exchange in 2011.

Tensions rose in May following the killing of a Cambodian soldier during a skirmish, which led to a major troop buildup at the border and escalated into diplomatic breakdowns and armed clashes.

Source: Reuters

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James Whitman

Political

President Donald Trump said on Monday he would sign an executive order this week related to the artificial intelligence approval process to avoid having different rules in each U.S. state.

"There must be only One Rulebook if we are going to continue to lead in AI... I will be doing a ONE RULE Executive Order this week. You can't expect a company to get 50 Approvals every time they want to do something," Trump said in a post on Truth Social.

Trump did not provide details on the executive order but Reuters reported last month that the U.S. president was considering an executive order that would seek to preempt state laws on AI through lawsuits and by withholding federal funding.

ChatGPT maker OpenAI, Alphabet's (GOOGL.O), opens new tab Google, Meta Platforms (META.O), opens new tab, and venture capital firm Andreessen Horowitz have called for national AI standards instead of a 50-state patchwork of laws, saying the laws stifle innovation.

The move is likely to face pushback from the states, who have previously warned of "disastrous consequences" if the technology is left unregulated.