AI-driven valuations at risk of sharp correction, central banks warn

Good morning. Here's what happened overnight and what you need to know today.

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1.

Bubble warning: The Bank of England and International Monetary Fund warned that bullish sentiment around artificial intelligence is pushing global equity valuations towards levels seen during the dotcom bubble, raising the risk of a sudden market correction. In its sharpest warning yet, the BoE’s Financial Policy Committee said the risk of a sharp correction had increased, with valuations for technology companies focused on AI appearing “stretched”. IMF managing director Kristalina Georgieva said markets had been “fired up” by optimism about AI’s productivity potential, but this sentiment “could turn abruptly”, exposing vulnerabilities and dragging down world growth. The BoE cited additional risks, including defaults in the US auto credit market, political pressure on the US Federal Reserve, and uncertainty in France and Japan. Georgieva said the global economy had generally withstood recent shocks and is projected to slow “only slightly” this year and next, supported by looser financial conditions and a weaker dollar, both of which could reverse. (BOE)(IMF)(FT)(Bloomberg)

2.

Robotic a(I)rm: SoftBank Group agreed to buy ABB’s industrial robotics unit as Masayoshi Son doubles down on AI and a surge in data centre construction. The deal values ABB’s robotics business at USD5.4 billion ($8.2 billion) and means ABB has abandoned previous plans to spin off the robotics business. SoftBank said that as part of its mission to realise “artificial super intelligence for the advancement of humanity”, it is actively investing and expanding its businesses across AI chips, AI robots, AI data centres and energy. It is also investing in companies leading generative AI developments. SoftBank has previously invested in Berkshire Grey, AutoStore and Agile Robots, and has ploughed tens of billions into OpenAI. The deal is expected to close in mid-to-late-2026. Elsewhere in AI funding, Elon Musk's xAI said it secured an equity investment from Nvidia, which would lift the AI startup’s ongoing funding round to USD20 billion. (SoftBank)(ABB)(Capital Brief)

3.

Fed minutes: US Federal Reserve officials showed support for further interest rate cuts this year, minutes from their 16–17 September policy meeting showed. Most participants said more easing would likely be appropriate, though a majority also flagged ongoing upside risks to inflation. The Fed cut its benchmark rate by 25 basis points to 4% to 4.25% in its first reduction of 2025, in an 11 to 1 vote. President Trump adviser Stephen Miran, sworn in that morning, dissented in favour of a half-point cut. Some officials said keeping rates unchanged would also have been justified. The median projection showed two more cuts by year-end. While labour market risks had increased, most officials saw no sharp deterioration. The meeting occurred before the government shutdown, which has since delayed key data. Officials noted financial conditions may not be particularly restrictive and stressed a cautious approach amid uncertainty over inflation’s persistence. (Capital Brief)(US Federal Reserve)(Bloomberg)

4.

First saga: Jefferies disclosed a fund it manages holds about USD715 million ($1.09 billion) in receivables tied to bankrupt auto-parts maker First Brands, which filed for Chapter 11 late last month with more than USD10 billion in liabilities. The receivables are almost entirely owed by retailers like Walmart, AutoZone, and O’Reilly Auto Parts, according to the bank. The exposure sits in Point Bonita Capital, a specialist invoice-finance fund within Jefferies’ Leucadia Asset Management unit, which manages a total of USD3 billion in trade-finance assets. Jefferies also said Apex Credit Partners, in which it owns a 50% stake, held about USD48 million in loans to First Brands through CLOs. It comes after court filings earlier this month revealed UBS Group funds face more than USD500 million in exposure to the collapsed supplier, including at least one managed by its O’Connor hedge fund unit. Bloomberg reported Blackrock is seeking cash from the Jefferies fund hit by First Brands. While Cantor Fitzgerald, which agreed in May to acquire O’Connor, is now also reportedly seeking to revise the deal by excluding the Working Capital Finance group and lowering the price. Both UBS and Jefferies said they are working to assess the impact and protect investor interests. (Capital Brief)(Jefferies)(Reuters)(Bloomberg)(FT)

5.

Revenue boom: IREN’s market value surged past Suncorp and Origin Energy after the company announced on Wednesday it had contracted out 11,000 Nvidia GPUs to AI players and would seek to raise up to USD1 billion ($1.5 billion) for further growth. IREN said the contracts to put 11,000 GPUs to work would generate “approximately” USD225 million in annualised revenue — or USD18.75 million per month — by the end of the year. That’s a substantial jump from the USD2.4 million it earned in August from its AI cloud division. The company’s stock has risen 660% in the past year, giving it a market capitalisation of USD16.78 billion. In July, IREN paused expansion of its mining operations to focus exclusively on the AI opportunity. Last month it announced a USD670 million investment to double its GPU fleet to 23,000, which it says will generate USD500 million in annualised revenue by the end of next year. (Capital Brief)

6.

Scrip spat: Activist hedge fund Sandon Capital will persist with a campaign to spill the Southern Cross Austereo board and change its constitution at its upcoming annual general meeting as the audio operator closes in on a controversial merger with Seven West Media. Sandon told investors on Wednesday it was “appalled” with the Southern Cross board for agreeing to merge with Seven in a deal it described as a “nil-premium reverse takeover” and flagged work to continue its campaign until next month’s AGM. The activist fund, which controls a stake of 11.3% in Southern Cross, has emerged as one of the fiercest critics of the controversial agreement that could see the audio company merge with Kerry Stokes’ Seven. The structure of the deal, which will see Southern Cross issue nearly 100% of its shares without going to a shareholder vote, has drawn sharp market criticism that has renewed calls for an overhaul of ASX listing rules. (Capital Brief)

7.

Chi-town control: US President Donald Trump called for Chicago mayor Brandon Johnson and Illinois governor JB Pritzker to be jailed, accusing the two Democrats of failing to protect federal immigration officers. Trump hurled the accusations via a Truth Social post on Wednesday without offering any evidence or specifying what laws either official allegedly broke. Immigration and Customs Enforcement agents have been undertaking raids across Chicago, which have prompted protests to break out in the city. Trump responded by ordering the US National Guard troops to the country’s third-largest city, spurring criticism from Illinois’ Democratic officials. Meanwhile, former FBI director James Comey pleaded not guilty to charges that he lied to lawmakers and obstructed a congressional proceeding. Comey is contesting the charges brought last month, in a case sought by President Trump, which alleges that Comey made a false statement under questioning from a senator during a 2020 hearing. (Trump Truth Social)(WSJ)(Capital Brief)(Bloomberg)

8.

No concessions: The US is pressuring the European Union to weaken or remove parts of its green legislation, despite agreeing to a tariff pact in August, The Financial Times reports. A US government position paper seen by the FT urges Brussels to scrap requirements for non-EU companies to submit “climate transition plans” and to amend supply chain rules to exempt US firms and others from “countries with high-quality corporate due diligence”. The EU’s corporate due diligence law, which came into force in 2024, requires companies operating in the bloc to identify potential environmental and social harms in their supply chains. The US document describes the legislation as “serious and unwarranted regulatory over-reach” that imposes “significant economic and regulatory burdens” on American firms. Sources told the FT that Washington conveyed its demands to the European Commission in recent days and is not offering concessions. Talks on the next phase of the trade deal are pending. (Capital Brief)(FT)(Bloomberg)