Big Tech burned $202 billion on AI last quarter and the labor market somehow still has a pulse · Daily Briefing

In 30 seconds: Amazon, Google, Microsoft, and Meta collectively doubled their AI-related capital expenditures year-over-year to $202 billion in Q3, driving record data center construction spending even as project cancellations and negative free cash flow raise concerns about sustainability. September JOLTS data beat expectations with job openings rising to 7.523 million, while hiring, quits, and vacancy rates all improved, suggesting the US labor market remains broadly healthy despite some sluggishness in flows. US strikes on Iran's Qeshm Island and ongoing midterm election uncertainty are driving oil prices higher, with crude back above $106, while Washington signals reluctance to escalate further and election results remain too close to call in key races. The RMB remains structurally undervalued at decade-ago levels in real terms, giving Chinese exports a persistent competitive advantage that is driving record trade surpluses and prompting defensive tariff responses from the EU and Southeast Asian nations.

Spending on data center construction alone rose 90% year over year, the largest such increase in over a decade. You might call this an investment cycle. You might also call it a faith-based initiative with a very expensive electricity bill. Amazon property and equipment spending climbed 122% year over year to $76 billion. Net income fell 2% year over year, and free cash flow landed at $33.5 billion, marking the largest decline in free cash flow ever. The company also booked a $9.5 billion other-income gain from its Anthropic investment, which is the kind of line item that makes you squint. META capex projection: $140 billion. META equity offerings: $97.5 billion. This is the kind of coherence that keeps credit analysts employed.

The stronger-than-expected September JOLTS report landed with a headline number of 7.523 million job openings, comfortably above the 7.164 million consensus estimate. The prior month was also revised upward, from 7.079 million to 7.19 million. The labor market added 333,000 openings in September, pushing the vacancy rate to 4.5%. The flow data looked broadly encouraging. Hiring rose by 131,000 to 5.4 million, lifting the hires rate from 3.3% to 3.4%. Quits jumped by 321,000 to 3.4 million, bringing the quits rate from 1.9% to 2.1%. A rising quits rate is typically a sign of greater worker confidence in finding a better job. Meanwhile layoffs fell by 127,000 to 1.6 million, leaving the layoff rate at 1.0%. Labor market churn improved slightly from a decade low. Dig into the composition and the picture gets more specific. Responsible for the momentum under job openings: mining, manufacturing, and construction added 291,000 openings over the past year. That is a narrow base of support. The three-month moving average of the vacancy-to-unemployed ratio sits at 1.06, compared with roughly 1.2 just before the pandemic. The market is getting incrementally tighter but still looser in level terms than just before the pandemic. On the same morning, factory orders came in at 1.8% versus a 1.2% forecast, and durable goods printed 1.9% against 1.8% expected. The labor market is not falling apart.

The US struck Iran's Qeshm Island yesterday. Washington has been reluctant to advertise the strikes, wary of signaling a desire for escalation. Washington appears reluctant to advertise the strikes or signal a desire for escalation, and Iran has so far chosen to absorb them rather than retaliate. Crude is already back above $106 a barrel this morning. Dem odds to win the Senate: 77%. Meanwhile, the average nationwide retail gasoline price sits at $4 a gallon, a 2-month low, but still nearly 40% above pre-war levels. Data center interests have poured over $170 million into ad spending this midterm cycle, yet AI is not even a top five issue for voters.

The renminbi is basically at its 2008-2010 level against the dollar. But China's economy is far more productive than it was back then, which means the currency is structurally undervalued in real terms. That wedge between productivity and price is the story. The mechanics are straightforward. PBoC forex deposit reserve requirement ratio up 2 percentage points effective Nov 15. On the import side, it suppresses demand for foreign consumer products. The result: large and growing external surplus. Recent currency moves have not changed the picture. The RMB remains at levels that give Chinese exports a leg up, and there is no reason to think that Chinese exports will stop outperforming global trade. Meanwhile, the PBoC is tightening the screws on forex liquidity, effective Nov 15, its first such increase since late 2021. Some trading partners are responding. Chinese exports to Europe already run at roughly $500 billion annually. The rest of the world is responding with tariffs or supply-chain rewiring — Thailand raising EV import taxes to 35%, the EU restructuring its $20 billion single market — but the structural undervaluation hasn't moved.