"The credit story in hyperscalers rests on a single consensus assumption"

1. Rates vs. oil. "The 3M rolling correlation between the US 10Y yield and WTI oil prices hit a high of +65% last week. That's above the highs we saw during the depth of covid and the 2011 Arab Spring and only slightly below the record high of 66% seen at the onset of the First Gulf War in 1990. If this pattern holds, then where yields go from here will be less dependent on the Fed and more on the situation in Iran"

2. CTAs vs. US equities. "We estimate the systematic trend following community could sell net $10bn of [global] equities this week if prices and vols remain in-line with current levels ... The SPX, however, stands as an outlier where we currently forecast a baseline flow of $8.5bn to buy"

3. Tech fund flows vs. AUM. "Tech sector ETFs just recently witnessed their largest inflows ever, and now comprise around 50% of sector ETF assets under management."

4. Semis valuation. "Semis are back to trading at a 13% discount to the S&P 500. That's below the longer-run pre-AI average and marks the cheapest relative valuation in more than four years."

5. Hyperscaler capex vs. cash flow. "The credit story in hyperscalers rests on a single consensus assumption, that operating cash flow triples from $600 billion to $2 trillion ... If this doesn't happen, then the risk is that the AI trade weakens, with credit spreads widening, capex plans getting cut and ultimately US GDP growth slowing."

ICYMI