After this week, we will have heard from the big tech oligarchy on the progress of the technology revolution.
The early clues from Alphabet (Google) last week: 1) the price to build generative AI computing capacity continues to go up, 2) the handful of companies that can afford to build it will spend whatever it takes on the infrastructure, 3) the AI model intelligence continues to rapidly advance, and 4) the stage of the technology revolution is still "early."
Additionally, we have three big central bank meetings this week. We'll hear from the Bank of Japan tomorrow night, the Fed on Wednesday, and the Bank of England on Thursday.
As we discussed last week, we should expect the Bank of Japan (BOJ) to lay out the plan to "begin the end" of quantitative easing — ending a decade-long ultra-aggressive program to stimulate inflation in an economy that spent decades battling deflationary forces.
And with the Japanese central bank exiting its role as the global liquidity backstop/support to Western world economies, the job becomes harder for Western world central banks to maintain global financial stability in a world of record sovereign indebtedness.
Remember, the BOJ continuing ultra-easy policy (including QE), as the rest of the world was tightening, was the only way the major central banks around the world were able to raise rates to combat inflation, without losing control of their respective government bond markets (i.e. runaway yields). And runaway government bond yields, at record government debt levels, are a recipe for global debt defaults.
So, the BOJ had to be pumping liquidity, as Western central banks were extracting liquidity. And it was overtly coordinated.
No surprise, now that the BOJ is attempting to tighten, the Western world central banks are easing again — with the exception of the Bank of England and the Fed.
The Bank of England will likely start on Thursday.
As for the Fed, as we discussed last week, they are running short on excuses for keeping rates overly tight. Inflation is near target, the jobs data on Friday should show more softening, and the risk of a liquidity shock is rising.
