The key facts

  • Brent rose to $113.73 (+0.5%), WTI to $100.08; oil delivery from the Persian Gulf to Asia exceeded $37 per barrel — five times more expensive than the pre-war level (MarketWatch).
  • The S&P 500 fell 1.2%, the Nasdaq 2.6%; Nvidia (-4.4%) was the main driver of the index's decline, Meta lost 7%, CoreWeave 10.1%.
  • The yield on 10-year Treasuries dropped to 4.97% from 5.13% as investors fled to safe assets; ahead are earnings reports from Microsoft, Amazon and Alphabet and the Fed's decision on October 28.

Markets under pressure from AI stock selloff

Most Asian stock markets declined on Friday after another selloff in shares of companies linked to artificial intelligence, which weighed on markets around the world and made Thursday the worst day for the S&P 500 since July. The US index fell 1.2%, the composite Nasdaq fell 2.6%, while weakness in the tech sector masked gains in most US stocks: the Dow Jones added less than 0.1%. Investors fear the AI stock boom is under threat due to rising borrowing costs for building data centers and buying chips, and that valuations have soared too high over years of euphoria despite the industry's continued growth.

Earnings: Meta, Tesla, Nvidia, CoreWeave

Meta Platforms, which is promoting the Muse AI assistant, lost 7%: quarterly revenue beat forecasts, but profit came in weaker. The company also announced the issuance of a new class of non-voting shares to fund AI investments while maintaining the current voting distribution. Tesla fell 3.1% after a report with profit above expectations but revenue below forecasts. Nvidia dropped 4.4% and, as the most valuable company on Wall Street, was the main driver of the S&P 500's decline. CoreWeave, which borrows to purchase Nvidia chips and rents out access to them via the cloud, plunged 10.1% on concerns about its debt load.

Oil and gas at highs since May

Brent at the start of trading on Friday cost $113.73 per barrel (+0.5%) after a 4% jump on Thursday, when it closed at $113.17. WTI rose 0.6% to $100.08. Oil surged sharply after deadly attacks in Saudi Arabia, which heightened fears that a full-scale regional conflict would further restrict global energy supplies. Freight costs are adding to the price of oil: according to MarketWatch, by mid-October the cost of delivering oil by tanker from the Persian Gulf to Asia exceeded $37 per barrel — more than five times the pre-war level. November futures on the Dutch TTF rose above €90 per megawatt-hour on Thursday.

Bonds: flight to safe assets

Concerns about high public debt and deficit budgets loom over many developed economies: protests in France are increasing pressure on the authorities to increase spending, which could raise the country's debt. The yield on 10-year French bonds at the end of Thursday held around 5.07% versus 3.34% for German bonds — a spread of about 173 basis points; Italian bonds yielded about 4.61%. Earlier, a selloff in the debt market had pushed Treasury yields to decades-long highs, but on Thursday the yield on 10-year notes fell to 4.97% from 5.13% — 16 basis points in a day — as investors sought safer assets amid the fall in AI stocks. The decline occurred despite data showing a drop in new jobless claims by 6,000 to 194,000 — the lowest since July.

What's next

Next week the tech sector faces new tests: Microsoft, Amazon and Alphabet will report earnings, and on Wednesday, October 28, the Fed will make its interest rate decision. On Friday, investors are watching preliminary October business activity indices for the eurozone, the UK and the US, which will show how rising energy prices and borrowing costs are affecting economic growth. Early on Friday, the dollar strengthened to 156.93 yen from 156.77, the euro held at $1.1215, and the pound traded at $1.3391. Gold futures fell almost 1% to $4,020.20 per ounce.