ORLANDO, Florida, Oct 6 (Reuters) - TRADING DAY

Making sense of the forces driving global markets

By Jamie McGeever, Markets Columnist

Politics and AI powered huge moves across world markets on

Monday, namely the collapse of the French government and

surprise emergence of a likely new leader in Japan, and a

multi-billion dollar chip-supply deal between AMD and OpenAI.

More on that below. In my column today, I ask the question:

who needs U.S. economic data when you have the stock market? It

may sound flippant, but the ties between Wall Street, household

wealth and consumption have rarely been stronger.

If you have more time to read, here are a few articles I

recommend to help you make sense of what happened in markets

today.

1. From OpenAI to Meta, firms channel billions into

AI

infrastructure as demand booms

2. France's political paralysis sparks fresh credit

rating

warnings

3. Takaichi win as Japan leader may delay, not

derail, BOJ

rate hikes

4. Time for Germany's 'sugar rush' to hit: Mike

Dolan

5. Top fund managers urge Bank of England to stop

selling

gilts into rocky debt markets

Today's Key Market Moves

* STOCKS: Japan's Nikkei leaps 4.75% to new peak

above

48,000. Europe, UK, Nasdaq, Russell 2000, MSCI World hit new

records too, fresh closing high for S&P 500.

* SHARES/SECTORS: AMD shares +24%, Philadelphia

semiconductor index hits new high. Real estate the biggest U.S.

sector decliner.

* FX: Japan's yen sinks nearly 2% to 150/$, bitcoin

at

record high above $125,000.

* BONDS: French yields spike, and Japanese yields

surge to

historic peaks - the 30-year yield a record 3.29%. U.S. Treasury

yields up, biggest rise in two weeks at the longer end.

* COMMODITIES: Gold hits new record high of

$3,970/oz,

homes in on $4,000. Precious metal surge as much as 5%, oil

rises almost 1% after OPEC+ ups production less than expected.

Today's Talking Points:

* Is France really 'uninvestable'?

France's government collapsed on Monday within hours of

being appointed after Prime Minister Sebastien Lecornu

unexpectedly handed in his resignation to President Emmanuel

Macron, making it the shortest-lived government in modern French

history.

The French market reaction was predictable enough - stocks

and bonds fell - but the big picture for the euro zone's second

largest economy is more of a worry. French bonds are now

increasingly seen as riskier than Italy's, and BCA Research has

gone as far as to say French bonds are "uninvestable".

* Japan jolts global markets

Japan's ruling Liberal Democratic Party, which has governed

Japan for almost all of the postwar era, has picked hardline

conservative Sanae Takaichi as its leader, putting her on course

to become the country's first female prime minister.

The most relevant aspect for markets is the likely effect of

Takaichi's policy stance on government spending and the Bank of

Japan - she is seen as a fiscal dove and has previously

criticized the BOJ's rate hikes. The impact of Japanese policy

and asset prices on global markets is always fascinating. Even

more so now.

* AI's increasingly entangled web

Another day, another mega deal in the rarified air of

Big Tech's artificial intelligence, and as night follows day,

new record highs for the U.S. tech sector, semiconductor index

and wider Nasdaq.

It's getting hard to keep up. As AJ Bell's Danni Hewson

notes - Nvidia and Microsoft have stakes in OpenAI; OpenAI has a

deal that could see it take a stake in AMD; Nvidia is taking a

stake in Intel, which could become a manufacturing partner for

AMD. "It all looks a bit odd, and it would be fascinating to

hear what antitrust regulators have to say," Hewson writes.

Who needs US economic data when you have Wall Street?

The U.S. government shutdown is delaying key economic data

releases, thickening the fog of uncertainty for policymakers and

businesses, but they needn't worry. They still have access to

one of the best economic indicators: the stock market.

That may sound flippant, but the connection between U.S.

equity prices, consumer spending and economic growth is

strengthening. By some measures, it has never been stronger.

This helps explain one of economists' big 'misses' this

year: stubbornly resilient U.S. consumption. They seem to have

underestimated the powerful, positive feedback loop of

gravity-defying strength on Wall Street and consumer spending,

the so-called wealth effect.

U.S. households have rarely been richer and have never had

so much of their wealth in the stock market. The epic rally in

equities is therefore making a lot of Americans feel a lot

richer, increasing their propensity to spend. This is

particularly true of the wealthiest households, who account for

an outsized share of consumer spending.

The Federal Reserve's national financial account figures for

the second quarter, the latest available, are revealing on this

measure.

Total household net wealth rose by $7.09 trillion, the

third-largest increase on record, with rising equity prices

contributing an eye-popping $5.51 trillion to gains in household

wealth during the period. This reflects the fact that equities'

share of total household assets has risen to a record 31%, or

more than 45% of households' financial assets, another record.

Considering the sheer size of these figures, it's reasonable

to assume that the 'wealth effect' is one major reason why

Americans are continuing to spend.

BIG SPENDERS

Economists are questioning the resilience of this

consumption, however, as the U.S. labor market is showing signs

of creaking, if not buckling. Job growth has essentially ground

to a halt, and while this may partly be a consequence of reduced

immigration, it still isn't something typically associated with

robust household consumption.

Yet economists at TD Securities - who share concerns about

the weakening U.S. job market - still expect consumer spending

to accelerate in the third quarter to a 3.2% annualized rate,

from 2.5% in the second, raising their GDP growth forecast to

2.8% from 2.2%.

What explains this seeming incongruity?

Namely, the rich, who largely thanks to roaring equity

markets, keep getting richer.

Consumption may always be driven by the wealthy, but that's

especially true today. The richest 10% of Americans account for

around half of all consumer spending, which itself represents

around 70% of all U.S. economic activity.

And the richest of all - the top 0.1% of households - saw

their share of total household wealth rise to a record 13.9% in

the second quarter, a period in which the S&P 500 rose 10.5% and

the tech-dominated Nasdaq rose 17.5%.

These indices rose another 8% and 11%, respectively, in the

third quarter, indicating that households felt even richer than

they did in the second. Rich enough to keep on spending

liberally?

The answer is likely "yes." Economists at Goldman Sachs

reckon that positive wealth effects may be strong enough to

support consumer spending growth over the next year, especially

after it gets a boost from the Trump administration's tax cuts.

Goldman estimates quarterly annualized consumption growth

was around 0.3 percentage points in the July-September period

and will be around 0.2 percentage points over the next year.

That's assuming equity prices rise in line with nominal GDP

growth. If equity markets keep booming, consumption could

eclipse economists' expectations yet again.

REASONS TO BE CAUTIOUS

Of course, the 'wealth effect' is no guarantee of an

uninterrupted consumption boom. While actual spending remains

fairly healthy, consumer confidence is low, near the lowest on

record, in fact, according to the University of Michigan's

sentiment index. But that's the confidence of the average

consumer, not that of the richest who keep seeing their stock

portfolios appreciate.

And as TS Lombard's Dario Perkins points out, the savings

rate should fall when net worth rises, as consumers take out

cash and spend. That's not happening now - the savings rate is

low at around 5%, but it has barely moved for the last few

years.

Finally, stocks could stop defying gravity. Claims that

we're reaching a market top have been growing lately. But as

long as optimism about artificial intelligence remains elevated

and U.S. tech companies continue recording strong earnings, that

long-awaited correction will stay just out of reach.

That's good news for U.S. equity holders, and, on balance,

the economy as a whole.

What could move markets tomorrow?

* Australia consumer confidence (October)

* Japan household spending (August)

* Germany industrial production (August)

* ECB President Christine Lagarde speaks

* Canada PMI (September)

* U.S. Treasury auctions $58 billion of three-year notes

* U.S. Federal Reserve officials scheduled to speak include

Atlanta Fed President Raphael Bostic, Minneapolis Fed President

Neel Kashkari, and Governors Michelle Bowman and Stephen Miran

Want to receive Trading Day in your inbox every weekday

morning? Sign up for my newsletter here.

Opinions expressed are those of the author. They do not

reflect the views of Reuters News, which, under the Trust

Principles, is committed to integrity, independence, and freedom

from bias.

(By Jamie McGeever;)