---
title: "Triple storm hits markets as Fed, AI bubble and FX interventions collide"
description: "Investors who began 2026 hoping for a year of gently rising markets and subdued volatility will by now be disappointed."
type: "OpinionNewsArticle"
publisher: "Daily Maverick"
site: "https://www.dailymaverick.co.za"
section: "Business Maverick"
author: "Natale Labia"
author_url: "https://www.dailymaverick.co.za/author/natale-labia/"
canonical_url: "https://www.dailymaverick.co.za/opinionista/2026-08-04-triple-storm-hits-markets-as-fed-ai-bubble-and-fx-interventions-collide/"
published: "2026-08-04T20:19:54"
lang: "en-ZA"
word_count: 1050
---

# Triple storm hits markets as Fed, AI bubble and FX interventions collide

> Investors who began 2026 hoping for a year of gently rising markets and subdued volatility will by now be disappointed.

By Natale Labia · Published 4 August 2026, 22:19 SAST

## Content

![Image](https://cdn.dailymaverick.co.za/i/ToEp388PygKxbVnnboBpUQ3buys=/200x100/smart/filters:strip_exif\(\)/file/dailymaverick/wp-content/uploads/2025/09/label-Opinion.jpg)

Two months ago, this column argued that “[crunch time](https://www.dailymaverick.co.za/opinionista/2026-06-09-crunch-time-for-markets-as-storm-clouds-gather-/?dm_source=blocks-horizontal&dm_medium=card-link&dm_campaign=inform&dm_position=8)” for markets was coming and that “storm clouds were gathering”. Regrettably, that is roughly what has transpired since. Furthermore, there is little reason to think the weather is about to clear.

At least three dynamics are creating this maelstrom. The first is the arrival of Kevin Warsh at the Federal Reserve and the inaugural rate decision of his tenure, announced at a press conference last week. Many had [expected](https://www.dailymaverick.co.za/opinionista/2026-02-03-a-new-and-potentially-hazardous-bet-at-the-fed/?dm_source=blocks-horizontal&dm_medium=card-link&dm_campaign=inform&dm_position=25) him to be unconventional, even purposefully obdurate. They were not let down.

The revealing moment came midway through the press conference. Prices, Warsh observed, had begun to respond in real time to market data instead of waiting for comments from the Fed, and the withdrawal of forward guidance was, according to him, a factor. Market participants, he said, were learning to “play the ball, not the referee”, and prices would move in whatever direction and by whatever magnitude investors saw fit. He clearly considered this a change for the better.

Set aside the debate on forward guidance, over which even experts on monetary policy differ. The metaphor is critical, because it reveals how the new chair sees the role of the institution over which he presides. On Warsh’s telling, the Fed officiates, and the market plays. This is not merely a strange interpretation. It is simply wrong.

The Fed is a player, albeit the most consequential one on the pitch. It sets the price of short-term money, wields a balance sheet large enough to move entire asset classes, and shapes the expectations around which every other market participant positions itself. Altering how it communicates does not change what it is. That an experienced economist believes differently is itself unsettling.

Markets did not hesitate to deliver their verdict. Warsh had confounded many expectations by leaving rates unchanged, but yields moved violently anyway. The US bond curve steepened; the two-year fell as the odds of an increase this year receded, while the 30-year jumped to 5.2%, its highest since 2007.

A bear steepener of that magnitude is a strange response to a decision to leave rates unchanged. The closest precedent is November 2010, when the Fed unveiled its second round of quantitative easing, which was hardly a comparable event. Investors have evidently lost confidence in this Fed’s willingness to bring inflation down. At the press conference, Warsh effectively declined to explain why the world’s most important monetary institution had all but decided to sit on its hands in the face of above-target inflation.

### **AI concerns not dissipating**

The second dynamic is what is transpiring in equities, where the week was no calmer. Situational Awareness, the hedge fund run by Leopold Aschenbrenner, who until recently had been described as a kind of 25-year-old wunderkind, blew up. It dumped its entire $16-billion public equity book to rival hedge fund Citadel after its four-times-leveraged bets on artificial intelligence companies collapsed. The absurd name of the fund has rapidly become an ironic byword on Wall Street for hubris. Could this go down as the equivalent of [Bear Stearns](https://edition.cnn.com/2018/09/30/investing/bear-stearns-2008-crisis-jimmy-cayne) in the spring of 2008, or indeed [Long Term Capital Management](https://www.federalreservehistory.org/essays/ltcm-near-failure) in 1998?

Either way, the collapse is a symptom, not a cause. Investors all over the world have spent the past month discovering that conviction on a narrative is not the same as insight. An eventual reckoning of this nature had been advertised well in advance and should surprise no one, as this column has repeatedly [argued](https://www.dailymaverick.co.za/opinionista/2026-05-19-the-bond-reckoning-is-about-to-meet-the-ai-mirage/?dm_source=blocks-horizontal&dm_medium=card-link&dm_campaign=inform&dm_position=11). As momentum leaves the market, investors do seem, at last, to be tiring of the AI/semiconductor nonsense.

For all the talk of a bubble, the US stock market is in the doldrums. The S&P 500 has been hacking sideways for months. Leadership changed hands in May, when the [Magnificent Seven](https://www.investopedia.com/magnificent-seven-stocks-8402262) of megacap tech stocks — which had driven performance since 2022 — started falling. In their place was a cohort of semiconductor stocks which briefly carried that baton. They too have since faded.

The market looks tired as it grapples with a genuinely hard question: what is the competitive structure of the AI industry, and of an economy in which AI is everywhere? Nobody yet knows which of these companies is building a moat and which is merely feigning one.

The earnings released shortly after Warsh finished speaking illustrate the point. Neither Microsoft nor Meta disturbed the uneasy sense of fear as to what comes next. Investors continue to be unhappy with Meta’s performance. The stock has been absolutely pummelled, down 20% in two weeks.

Microsoft fared better; revenue at the intelligent cloud business — where its AI products sit — jumped 32%. That was enough growth to offset worries about spending. It is up 21% by comparison. Amazon and Apple have similarly diverging fortunes, with investors rewarding Amazon’s cloud business growth figures but punishing Apple on cost and production concerns. As an investment theme, the Mag Seven is dead. If this bull market is not over, what replaces it is unclear.

### **The Age of FX Intervention is upon us**

The third dynamic is the weirdest. On Friday, the US Treasury intervened in global foreign exchange markets, specifically to try and shore up the Japanese yen, the first time in nearly three decades that Washington and Tokyo have jointly supported the Japanese currency through open market purchases. The New York Fed executed the trade, selling euros to buy yen on the Treasury’s behalf.

Ordinarily, a weak yen, which inflates the cost of imported energy and feeds domestic inflation, would be Japan’s problem, and Japan has been selling dollars to try to strengthen the currency. So for Washington to intervene is an extraordinary measure, while intervention conducted in euros, not dollars, is close to inexplicable. It came days after Treasury Secretary Scott Bessent described the yen as undervalued, and hours after Reuters photographed his Cabinet-meeting to-do list, which contained a single item: “Buy $5bn-$10bn of yen”. This chain of events is so bizarre as to be barely believable. One must wonder what it presages.

August is normally a thin, choppy month, with senior traders away from their desks and volumes thin. The three dynamics, however, are not about to disappear. The final months of this year may yet mark the inflection point of the longest bull run on record. **DM**