Welcome to this week’s Market Pulse, your 5-minute update on key market news and events, with takeaways and insights from the Sidekick Investment Team.

Today, we're looking at the recent AWS outage, the Japanese widowmaker trade, and UK inflation figures. 

But first, our number of the week…

$5 trillion

That’s the volume of assets managed by the global hedge fund industry, according to the latest estimates. Following record inflows, hedge fund assets have reached their highest level in history as investors search for uncorrelated returns. 

Sidekick Takeaway: While hedge fund inflows slowed after the Great Financial Crisis, the industry has experienced a resurgence as investors seek a refuge from market volatility. But that refuge comes at a cost – fees at high-performing hedge funds have continued to climb, too.

Only have a minute to read? Here’s the TL;DR:

• This week’s Amazon Web Services outage disrupted millions of websites, highlighting concentration risks in the cloud computing market. With the ‘Big Three’ computing providers continuing to build new AI-related infrastructure, the economic costs of future outages could soar. 
• Betting against Japanese bonds has finally paid off, with the country’s government bond market returning -4.2% this year. While domestic inflation and deficit expansion have driven yields up, that rise may be short-lived, especially as the Fed’s cutting cycle puts downward pressure on global rates. 
• UK inflation held steady at 3.8% for the third consecutive month, suggesting price pressures have already peaked. That stabilisation increased market odds of a pre-Christmas rate cut to 70% and could deliver a political win for Chancellor Rachel Reeves ahead of her November fiscal plans.

It’s important to note that the content of this Market Pulse is based on current public information which we consider to be reliable and accurate. It represents Sidekick’s view only and does not represent investment advice - investors should not take decisions to trade based on this information.

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Stormy Weather: AWS Outage Highlights Cloud Concentration 

For most people, Amazon is best known for the company’s massive e-commerce business.

But the firm also runs an underappreciated – and incredibly lucrative – cloud computing platform.

Amazon Web Services helps run nearly a third of the internet. As a result, when something goes wrong at AWS, millions of websites can be affected.

That’s exactly what happened this week, with an outage leading to issues at apps and sites like Robinhood, Reddit, Venmo, Lyft, Zoom, and many more.

The incident has since been resolved. But it highlights the increasing risks of cloud centralisation in the age of AI.

The cloud market is highly centralised, increasing risks

AWS is one of the biggest players in the cloud market, with a market share of about 30%.

The platform is trailed by Microsoft Azure and Google Cloud. Together, the ‘Big Three’ account for about two-thirds of the cloud market, upholding vast portions of the internet.

Due to AI-related investment, the cloud market is expanding significantly – Goldman Sachs forecasts annualised market growth of 22% through 2030. 

But this expansion hasn’t led to meaningful diversification. Cloud growth remains highly concentrated among the Big Three.

According to experts, the economic costs of the recent AWS outage could easily reach hundreds of billions of dollars. 

As AI becomes increasingly integrated into business operations, the costs of future disruptions could dwarf that figure if these tools become inaccessible during an outage. 

Sidekick Takeaway: The core premise of cloud infrastructure is efficiency – one large server is better than dozens of smaller ones. But the trade-off for that efficiency is centralisation, leading to a single point of failure when things go wrong. The AI arms race isn’t merely increasing the cloud industry’s centralisation, but also increasing the costs of potential failures. 

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The Widowmaker: Japanese Yields Are Finally Rising

For decades, betting against Japanese bonds was seen as a dangerous game. 

Many traders lost their shirts waiting for the country’s ultra-low interest rates to rise. The trade became known as the ‘widowmaker.’

But at long last, the widowmaker trade is paying off. Yields on Japanese bonds have soared this year, leading to falling prices.

Earlier this month, the yield on 30-year Japanese bonds hit an all-time high, reaching 3.3%. 

A perfect storm of factors has helped lift Japanese rates – but some analysts expect that storm to be short-lived.

Japanese yields have climbed – but for how long?

Japan has the world’s worst-performing government bond market this year by far, posting returns of -4.2%. (Denmark, the runner-up, has returned -0.9%.)

Several factors have contributed to the long-awaited rise in Japanese yields, including:

• Elevated domestic inflation, prompting the Bank of Japan to raise rates.
• The election of a new ruling coalition that’s set to expand Japan’s deficit.
• And the BOJ’s plan to ease the pace of its ongoing bond purchases.

However, it’s not clear whether this rise will last. Other trends are pointing in the opposite direction.

Japanese yields have historically demonstrated a strong correlation with US yields, which are expected to fall as the Fed cuts rates.

What’s more, Japanese life insurance giants are likely to return to the bond market as volatility has cooled, which could further push down yields.

Betting against Japanese bonds has paid off so far – but the widowmaker could still fulfill its reputation. 

Sidekick Takeaway: Japan’s government bond market is worth understanding because the country is emblematic of many advanced economies, with an aging population and persistently low growth. Whether or not yields remain elevated in Japan will serve as a valuable bellwether in an age of deglobalisation and rising fiscal pressures.

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Peak Price Pain: UK Inflation Stabilises in September 

First, the bad news: Britain’s price pressures are currently the worst among all advanced economies. 

In September, UK CPI was 3.8%. That’s nearly double the Bank of England’s target and far higher than peers like the US and Canada. 

Thankfully, there’s a silver lining to this data: UK inflation has now held steady for the third month in a row, indicating that price pressures may have peaked.

In other words, inflation is still frustrating – but the worst may already be over.

Steady inflation opens door for BoE rate cuts

The BoE initially expected inflation to peak at 4.0%, meaning that 3.8% would be a notable improvement.

Traders still see a rate cut next month as unlikely. But the odds of another cut before Christmas have now risen to about 70%.

What’s more, this inflation data could deliver a notable win for Chancellor Rachel Reeves.

Reeves has promised to unveil fiscal plans designed to contain price pressures in November. If inflation has already peaked, much of the work could already be done.

It will take a meaningful decline in CPI to confidently call an end to the UK’s inflation woes – but key categories like food inflation have already begun to dip. 

Sidekick Takeaway: One notable area of uncertainty tied to UK inflation is the impact of US tariffs. While some economists expect tariffs to directly increase price pressures, others see tariffs slowing UK growth and thus contributing to lower inflation. Whatever the case, this uncertainty shows that while UK inflation may have stabilised, the story is far from over. 

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Notices

Sidekick Money Ltd is a company registered in England and Wales (No. 13882980). Sidekick Money Ltd is authorised and regulated by the Financial Conduct Authority (FRN 984829). Our address is 21-33 Great Eastern St, London, EC2A 3EJ.

𝘗𝘭𝘦𝘢𝘴𝘦 𝘳𝘦𝘮𝘦𝘮𝘣𝘦𝘳, 𝘪𝘯𝘷𝘦𝘴𝘵𝘪𝘯𝘨 𝘴𝘩𝘰𝘶𝘭𝘥 𝘣𝘦 𝘷𝘪𝘦𝘸𝘦𝘥 𝘢𝘴 𝘭𝘰𝘯𝘨𝘦𝘳 𝘵𝘦𝘳𝘮. 𝘠𝘰𝘶𝘳 𝘤𝘢𝘱𝘪𝘵𝘢𝘭 𝘪𝘴 𝘢𝘵 𝘳𝘪𝘴𝘬 - 𝘵𝘩𝘦 𝘷𝘢𝘭𝘶𝘦 𝘰𝘧 𝘪𝘯𝘷𝘦𝘴𝘵𝘮𝘦𝘯𝘵𝘴 𝘤𝘢𝘯 𝘨𝘰 𝘶𝘱 𝘢𝘯𝘥 𝘥𝘰𝘸𝘯, 𝘢𝘯𝘥 𝘺𝘰𝘶 𝘮𝘢𝘺 𝘨𝘦𝘵 𝘣𝘢𝘤𝘬 𝘭𝘦𝘴𝘴 𝘵𝘩𝘢𝘯 𝘺𝘰𝘶 𝘱𝘶𝘵 𝘪𝘯.