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 why the ECB is determined not to repeat past inflation mistakes, evidence that AI firms continue to face capacity constraints, and what LVMH’s record slump says about global confidence.
But first, our number of the week…
$26 billion
That was the total cost of all munitions fired by the US, Israel, and allies in the first 16 days of the Iran war, according to analysis from a leading UK defence think tank. That number includes an initial salvo of 5,000 munitions in the first ninety-six hours of the war.
Sidekick Takeaway: Western defence stockpiles were already stretched before the Iran war, and the sheer volume of recent munitions expenditure means that replenishing them will take years. For defence contractors across the US and Europe, the conflict could mark the beginning of a restocking cycle that governments have little choice but to fund.
Only have a minute to read? Here’s the TL;DR:
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.
Lessons Learned: ECB Signals It Won’t Repeat 2022’s Inflation Mistake
In 2022, the ECB was slow to respond to surging energy prices following Russia’s invasion of Ukraine.
For months, officials argued the spike was transitory. By the time the central bank acted, inflation was running at 8%, forcing a steep tightening cycle.
Now, with the Iran war driving euro-zone inflation back above target, policymakers appear determined not to make the same mistake twice.
ECB draws on bitter memories
In March, Euro area inflation hit 2.5%, the highest level since 2022.
ECB President Christine Lagarde has signalled a willingness to hike rates even if that surge proves short-lived:
It remains to be seen whether the ECB ultimately pulls the trigger – the decision could depend on the length of the Iran war.
But the tone from Frankfurt marks a clear departure from the hesitancy that defined 2022’s inflationary episode.
Sidekick Takeaway: Not all central banks share the ECB’s urgency. The Federal Reserve appears to be taking a ‘wait and see’ approach, with Jerome Powell arguing that energy shocks will likely dissipate before rate hikes have an effect. These diverging approaches could lead to a shifting global rate environment in 2026.
Compute Crunch: AI’s True Infrastructure Challenge Is Scarcity
For months, investors have fretted that the AI infrastructure boom has gone too far.
With total investment in AI chips, servers, and data centres expected to cost trillions of dollars through 2030, the fear is familiar: a repeat of the dot-com era’s overbuild, where capacity vastly outstripped demand.
But the past few weeks have delivered evidence pointing in the opposite direction. The problem isn’t too much computing power – it’s too little.
AI demand is outrunning supply
In an effort to manage strained resources, two leading AI firms have been forced to make significant trade-offs in the past few weeks:
These signals don’t point to an industry drowning in excess capacity. Instead, they suggest that AI’s infrastructure buildout has yet to catch up with real-world adoption.
Sidekick Takeaway: The risks of overbuilding haven’t disappeared entirely. Supply chain researchers have warned of a potential bullwhip effect in AI hardware, where shortage-driven ordering could produce a coming glut. Nonetheless, today’s resource bottlenecks remain real, and it could be years before supply meaningfully catches up.
Confidence Check: LVMH’s Record Slump Signals Broader Worry
LVMH isn’t just the world’s largest luxury company. It’s also widely regarded as a barometer for global consumer confidence.
When wealthy shoppers feel optimistic, they spend on handbags and cognac. When they’re worried, LVMH tends to be one of the first firms to feel it.
That’s why the company’s worst-ever start to a year has attracted attention well beyond the luxury sector.
In Q1, LVMH shares declined 28% – a steeper drop than during the 2008 financial crisis, Covid, or the Dot-com bust.
That poor performance suggests something deeper than a standard industry downturn.
War, wealth effects, and waning demand
LVMH’s sell-off reflects a confluence of pressures that extend far beyond the company itself:
Notably, a poor Q1 doesn’t always foreshadow a poor year. In 2020, LVMH fell 18% in Q1 before finishing the year up 23%.
Sidekick Takeaway: LVMH’s slump doesn’t guarantee a recession or signal the end of luxury spending. But it is a meaningful warning sign that anxiety over the Iran conflict is bleeding well beyond oil markets. When the world’s wealthiest consumers start pulling back, it suggests that global growth could be more fragile than it appears.
Notices
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