France’s fiscal turmoil risks eurozone contagion, the UK selects six banks for its tokenised gilt pilot, and HSBC weighs AI-driven cuts to its UK wealth advisers.

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 how France’s fiscal turmoil could spill over into the rest of the eurozone, the UK’s latest step towards tokenised government debt, and HSBC’s reported plans to replace most of its UK wealth advisers with AI.

But first, our number of the week…

$40 billion

That’s how much SpaceX is in talks to raise from banks and investors to buy Nvidia chips, according to reports from Bloomberg. If the deal is completed, it would rank among the largest debt financings yet for the AI buildout.

Sidekick Takeaway: AI-related bond issuance has reached at least $360 billion this year, tripling its share of global bond sales from last year. As the industry’s demand for capital accelerates, AI is becoming a larger share of global debt markets, not just equity markets.

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

• French 10-year yields have climbed towards 5%, their highest level since 2002, as the country’s political challenges have coincided with a global debt sell-off. With the euro at a 17-month low, investors fear the turmoil could spread across the eurozone.
• The UK has selected six banks, including Barclays and HSBC, to underwrite and distribute its pilot issuance of tokenised gilts. The first issuance isn’t expected until 2027, but a successful pilot could help make London a global hub for digital assets.
• HSBC is reportedly considering cutting its number of UK financial advisers by nearly 70% following the bank’s aggressive embrace of AI. Banks are increasingly betting that AI efficiency improvements are worth the risks of the new technology.

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.

French Connection: France’s Fiscal Turmoil Risks Market Contagion

France has become the latest victim of a global bond market sell-off that’s seen yields soar and investor confidence plummet.

French 10-year yields have climbed towards 5%, reaching their highest level since 2002.

In fact, nearly €215 billion worth of French corporate bonds now trade at a discount to the country’s sovereign debt.

What’s more, the country’s fiscal reckoning could risk pushing the eurozone into crisis.

With fears of market contagion growing, the IMF has issued a stark warning to France, urging the government to cut deficits and get its fiscal situation under control.

French politics collide with global markets

As investors lose confidence in France, the damage is spreading to other eurozone countries:

• Fears of a French default have triggered a flight to quality. As investors flee towards German bunds, countries like Italy and Belgium are paying the price, too.
• The euro is sliding sharply, hitting a 17-month low this week. That could risk triggering imported inflation across the continent.
• Bank stocks are starting to feel the impact of the fiscal turmoil. One index of European banks has dipped over 8% this month alone.

Investors are waiting to see whether the French parliament will pass a contentious budget, which could calm markets.

But amidst student protests over education cuts, politics could be on a collision course with markets.

Sidekick Takeaway: One virtue of having never adopted the euro is that British debt markets tend to be more insulated from the rest of Europe. Thus, while the UK is facing its own fiscal challenges, knock-on effects from France are less immediately concerning.

DIGITal Era: UK Selects Six Banks for Tokenised Gilt Issuance

As the UK’s digital asset push continues, six banks have been selected to manage the country’s pilot issuance of tokenised gilts.

The instruments, known as DIGITs, will be blockchain-native sovereign debt. According to a Treasury statement, Barclays, HSBC, and other banks will underwrite and distribute the bonds.

While the first DIGIT issuance isn’t expected until 2027, tokenisation could help make gilt trading faster and cheaper.

If the pilot experiment is successful, the DIGIT framework could expand to other markets, potentially making the UK a global hub for digital assets.

Keeping London on the map

Under successive Labour governments, the UK has shifted from debating digital assets to gradually implementing the technology:

• The Starmer government’s Wholesale Financial Markets Digital Strategy, published last year, pointed to DIGITs, stablecoins, and tokenised deposits as key areas of focus.
• Under Andy Burnham, that focus has continued, with City Minister Lucy Rigby stating this week that digital markets are a ‘national endeavour’ in the UK.
• Implemented properly, the result could be faster settlement, cheaper payments, and more intelligent deployment of collateral – all making markets more efficient.

At a time when London’s status as a global financial hub is under pressure, this focus has never been more important.

World-class digital asset infrastructure and regulation would ensure that the UK is leading the next era of finance, not playing catch-up.

Sidekick Takeaway: A pilot experiment for digital gilts may seem like a small step. But considering that the gilt market is worth over £2 trillion, tokenising even a tiny slice of this market could help show that this technology works in a regulated market at scale.

Banking on Bots: HSBC Weighs Cuts to Most UK Wealth Advisers

In a sign of how AI is reshaping the financial industry, HSBC is reportedly planning to make significant job cuts in its UK wealth management business.

According to the Financial Times, the bank is considering cutting its number of financial advisers in the country by nearly 70%.

HSBC hasn’t confirmed the restructuring plans. However, the bank’s CEO Georges Elhedery has been a vocal advocate for AI making employees more effective and efficient.

The plans would mark one of the clearest cases yet of a major bank replacing client-facing advisers with AI, not just support staff.

Cutting edge, cutting jobs

While HSBC’s reported cuts are significant, the bank isn’t alone in trying to use AI to increase efficiency:

• Firms like Bank of America and Citi have also reduced headcount on plans to use AI to drive increased productivity.
• In response, Wall Street has begun explicitly flagging hallucinations as a new source of risk. Banks are reportedly using models to assess the creditworthiness of companies and communicate with clients.
• In the UK, the FCA has made it clear that companies are still responsible for decisions made by AI, underscoring the importance of human oversight.

Banks are betting that efficiency gains from AI will outweigh the new risks of the technology – a bet that regulators are watching closely.

Sidekick Takeaway: As one of the most aggressive adopters of AI, the financial industry could be a bellwether for knowledge work as a whole. Already, the BoE has warned that AI is reducing demand for junior knowledge work roles, a trend that could accelerate as models improve.

Notices

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