Summary

Futures Wobble After AI Bloodbath As Brent Hits $114, France Braces For Moody's US futures are lower, erasing a modest overnight bounce, as markets scramble after Thursday's violent AI liquidation while oil rises again: Brent hit the highest level since May after the Houthis fired another missile at Riyadh and an IRGC official declared traffic of "illicit" vessels through Hormuz "completely stopped" (contradicted by a Bloomberg headline just minutes prior), while Thursday's haven bid fades; as a result Treasuries give back part of their biggest rally in more than two years with the 10Y yield rising back to 4.99%. As of 8:00am ET, S&P futures are down 0.2% at 7,687 while Nasdaq futures are down 0.1% at 29,100; Dow futures underperform, sliding 0.6%. That follows Thursday's chaotic session, when the S&P dropped 1.2% and the Nasdaq 100 tumbled almost 3%, its worst day since June, even as two-thirds of the S&P rose and the hedge fund VIP basket suffered its worst day since 2011 (as we detailed last night). In premarket trading, Mag 7 names are mixed with Nvidia (+0.6%) and Tesla (+0.8%) higher while Meta and Microsoft (both -0.7%) lag; tower companies jump and wireless carriers slide after SpaceX was said to be targeting 80,000 or more US cell sites, while Deckers tumbles after cutting its full-year sales guidance. The day's driver is the AI trade (what else): OpenAI is now targeting a $1.25 trillion valuation for its $30 billion raise, $150 billion below last month's ask, and SK Hynix scrapped a US listing of its Solidigm unit, yet chips are modestly higher after the Kospi erased a 4.1% plunge to close up 0.3%; according to Bloomberg, "this looks less like capitulation than a repricing of who pays for the build-out." Bonds are cheaper across the curve in a bear-flattening move, as the tech rout eases and oil climbs further, complicating the inflation outlook; French bonds outperform after the OAT-Bund spread opened at a fresh post-2011 high of 176bps, even as France's flash PMIs collapsed into contraction ahead of tonight's Moody's review. The Bloomberg Dollar Spot Index is up 0.1% and the euro slips 0.2% after the dismal French PMI, while the kiwi outperforms on ANZ calling for three RBNZ hikes. In commodities, WTI rises 1.8% to $101.22 and Brent 1.4% to $114.80; gold is flat near $4,030 and silver slides 1.1%. Bitcoin rises 0.5% to about $81,600. US economic data slate includes the October S&P Global flash PMIs (9:45am), the final October University of Michigan sentiment and inflation expectations (10am) and the Kansas City Fed services survey (11am). The Fed is in its blackout period ahead of next Wednesday's FOMC, so there are no Fed speakers. In premarket trading, Mag 7 stocks are mixed (Alphabet (GOOGL) -0.2%, Amazon (AMZN) -0.2%, Apple (AAPL) -0.1%, Meta Platforms (META) -0.5%, Microsoft (MSFT) -0.5%, Nvidia (NVDA) +0.2%, Tesla (TSLA) +0.1%) Tower companies gain and wireless carriers slide after SpaceX was said to be targeting 80,000 or more US cell sites, with talks under way with at least one infrastructure owner. Crown Castle (CCI) +9%, American Tower (AMT) +6%; AT&T (T) -4%, T-Mobile (TMUS) -4%, Verizon (VZ) -3.8% Autoliv (ALV) falls 5% after the maker of airbag systems cut its adjusted operating margin forecast for the full year. Bloom Energy (BE), which has more than doubled this year on demand for AI power sources, is down 3% after its quarterly report.  Bloomberg Intelligence notes that “operating cash flow turned negative in 3Q as contract assets, receivables and inventory rose.” Deckers Outdoor (DECK) falls 7% after the footwear company cut its net sales guidance for the full year, which also fell short of the consensus estimate. MaxLinear (MXL) climbs 2% after the semiconductor device company’s third-quarter results beat expectations and it gave a revenue forecast that is seen as strong. Newmont Corp. (NEM) inches 1% lower after the miner forecast higher than expected 2027 spending for its Red Chris copper-gold mine in British Columbia. Norwegian Cruise (NCLH) slips 3% after JPMorgan downgraded the stock to underweight and reduced his price target to a Street-low $11 per share. Norwegian is due to report third-quarter results on Oct. 29. RingCentral (RNG) rises 16% after the communications software company raised its full-year forecast for adjusted earnings. It also reported third-quarter results that beat expectations. In other corporate news, OpenAI's valuation ambitions got a $150 billion haircut: the ChatGPT maker is now targeting $1.25 trillion in the final stages of negotiations for its roughly $30 billion funding round, led by UAE investors, down from the $1.4 trillion it was seeking last month (good thing Anthropic is reportedly aiming for $2 trillion in its IPO). SK Hynix scrapped plans for a potential $10 billion US listing of its Solidigm unit. American Express raised its full-year EPS forecast to $18.30-$18.60 from $17.30-$17.90. BASF is said to have raised its bid for rival Evonik to about €24 per share, and SLB sees growth driven by a Middle East oil field recovery. Citigroup won approval to launch a wholly-owned securities business in China after a nearly five-year wait. Nvidia invested in AI video and image generator Higgsfield. Alnylam reported positive data for its Huntington's disease drug. Calpers is pivoting from US tech giants to private equity, the FT reports. Canadian oil and gas producer Logan Energy is exploring options including a potential sale, while allergy and autoimmune biotech Lycia Therapeutics raised $317.5 million in an upsized IPO priced at the top of its range. Apple's $2,000-and-up foldable iPhone Duo went on sale today, with new orders being offered delivery at the end of January. Infosys narrowed its FY revenue growth outlook to 1%-2% from 1.5%-3%, and China's Cambricon reported 3Q revenue of 3.53 billion yuan, well below the 6.26 billion estimate. Stocks are set for a relatively steady start as investors look beyond AI winners, Bloomberg's Michael Msika writes: shares seen as vulnerable to disruption are now outperforming those seen as the technology's biggest beneficiaries. Thursday's decline was concentrated in technology, but the broader market carried on, with the equal-weight S&P 500 finishing up 0.8%, its best day since 2024 relative to the cap-weighted index; advancers outnumbered decliners by about two-to-one and 61% of S&P members are now above their 50-day moving average, the highest in two months. The AI trade is the culprit once again, but investors do not appear to be turning risk-off so much as repricing the build-out, taking money off the semiconductor trade to reinvest into defensive sectors like staples and utilities. A basket of AI winners is now down 23% from its June highs, while stocks at risk of AI disruption have surged nearly 60% over the same period and now lead for the year. AI losers overtake winners this year after a 59% surge from June low.“Yesterday the market did not stop believing in AI, it simply started asking who pays for it, and at a 5% bond yield that question has an opportunity cost,” said Florian Ielpo, head of macro research at Lombard Odier Asset Management. “What we’re seeing is a repricing of valuations across the board as rates rise, with neoclouds and other leveraged operators hit hardest,” said Hugh Lam, investment strategist at Betashares in Sydney. “Those financing concerns are weighing on hardware-linked markets like Japan and Korea, which have seen more volatility in recent months.” The financing angle is the crux: Meta's spending commitments have swelled to $825 billion and its CDS hit a record after results (as we reported), CoreWeave's 5Y CDS blew out to 1,162bps (Bernstein sees a $76 billion funding hole), and credit metrics are flashing their biggest risk-off signal in more than a year. Meanwhile, the S&P Consumer Staples index is up 12% in October, on track for its best month since October 1998, as investors rotate out of tech and into defensives. V-shape market breadth had almost no impact at index level.Goldman's Rich Privorotsky called Thursday the session that "made the least sense of any day in this selloff", with AI versus the S&P ex-AI suffering its worst relative day since the DeepSeek moment. His summary of the AI capex dilemma: "You either cut capex, delay deployment or increasingly fund through equity. None are particularly supportive of equity prices." The flip side, as he puts it: "Rates: AI loses, bonds win" (a theme his desk laid out earlier this week and McElligott echoed). Goldman Prime notes that all three hedge fund strategy groups lost more than 1% on the same day for the first time since Covid, with multi-strats down 1.9%, the second-worst day since the April 2025 tariff selloff, while TMT specialist Sean Johnstone sums up the mood: "strong AI demand is not enough." JPMorgan's Market Intel desk says Thursday's Nasdaq selloff showed the fragile sentiment around AI financing, with chatter around a possible US/Israeli strike on Iran after the midterms sparking a broader tech-led de-risking; its cash desk saw long-onlys 3x better for sale while hedge funds were 2.6x better to buy, mostly covering. With MSFT, GOOGL and AMZN reporting next week, investors "may remain low conviction to add risk", though the team stays Tactically Bullish, favoring cyclicals outside tech while selectively buying tech weakness in semis and memory. JPM's Jay Barry notes Thursday's 15-21bp drop in Treasury yields was the largest one-day decline since March 2023, as yields have become increasingly correlated with the Nasdaq. Elsewhere, SpaceX continued to disrupt the telecom market, aiming to secure at least 80,000 US cell sites and in talks with at least one major infrastructure owner, which is why towers are flying and carriers are getting hit on both sides of the Atlantic. Governments, banks and airlines are still racing to patch critical flaws in PHP, the language underpinning as much as 70% of the internet, which researchers uncovered with the help of AI tools (as we noted yesterday). In politics, President Trump travels to Florida today after rallying in Iowa for GOP Senate hopeful Ashley Hinson, while Goldman desks flag a Democratic sweep at roughly 70% on Polymarket as another AI overhang. In Europe, the French bond crisis takes a breather: the OAT-Bund spread opened at a fresh high of 176bps, the widest since 2011, before narrowing slightly, but remains set for its biggest weekly widening on record (“Everyone has blown up”). Moody's review of France's rating is due after the close, with a downgrade likely given its negative outlook, and France is deploying the military to back up police ahead of weekend protests. Goldman FICC's take on hedging all of this is here. In Europe, the Stoxx 600 is down 0.5% at 634.75, falling for a second day as disappointing earnings, including from Kering's Gucci, add to concerns over the AI trade and elevated oil prices. Telecoms are the worst-performing sector on the SpaceX cell-site report, while energy leads gains alongside construction and real estate. Volvo Car plunged as much as 32% to its lowest since its 2021 listing as cratering China sales and US tariffs hit its turnaround, Kering slid as much as 12%, and Intrum crashed as much as 43% to a record low. Flash PMIs did not help: the euro-area composite fell to 51.9 vs 52.7 expected, dragged down by a surprise plunge into contraction in France (composite 48.4 vs 50.3 est.), while the UK composite jumped to 53.1 vs 51.7 expected. JPM notes semis, luxury, ceasefire and software are among the worst-performing baskets. Here are the biggest European movers: Electrolux shares gain as much as 12% after the Swedish home-appliance maker’s 3Q EBIT beat expectations by about 5%. Citi says the result comes despite challenging end markets. Sodexo shares rise as much as 6% after the French caterer reported better-than-expected organic sales growth, earnings and dividend for the most recent fiscal year. Munters shares rise as much as 11% after the Swedish heating and air treatment solutions firm reported third-quarter orders that beat the average analyst estimate. Signify shares rise as much as 10% after the light manufacturing company posted results that Morgan Stanley described as a small positive, given relatively low expectations. Kering shares slide as much as 12% after the French luxury-goods company saw further deceleration of third-quarter revenue growth at its key Gucci unit, slower growth in North America as well as persistent weakness in China. Volvo Car shares sink as much as 32% to their lowest since its 2021 listing after what analysts called a weak third quarter, as cratering China sales and US tariffs complicate the automaker’s turnaround. Intrum shares fall as much as 43%, hitting a record low, after the Swedish debt collector reported a goodwill impairment of SEK1.5b due to underperformance in Germany. European Telecom operator shares drop after Bloomberg News reported that SpaceX is in talks to access cell sites in the US, adding to investor concerns around increased competition within the sector. Volvo shares fall as much as 3.5% after the truckmaker’s results were described as a lower-quality beat by analysts. Safran shares fall as much as 7% after the company reaffirmed its guidance when analysts had been expecting upgrades to the group’s outlook. Valeo fell as much as 13% after analysts noted a language change in forecasts for the rest of the year in the auto company’s third-quarter results. Asian stocks steadied after a chip-led selloff, with most indexes well off their opening lows, though the MSCI Asia Pacific Index is headed for a fourth straight weekly loss. The Kospi staged an impressive turnaround, closing up 0.3% at 5,550 after plunging as much as 4.1% at the open, led by SK Hynix (+4.4%) and local institutional buying even as foreigners dumped $729 million, per Goldman's Seoul desk; there didn't appear to be a particular catalyst, and the Kospi is still down about 21% in October, the world's worst major market this month. Japan's Nikkei 225 fell 0.3% to 62,693 after briefly dipping below 62,000, finding support near its 200-day moving average. In China, the CSI 300 jumped 1.7% and ChiNext 4% as state-backed "national team" ETFs saw about RMB84 billion of turnover, a day after the CSI 300 entered a bear market, while the Hang Seng rose 0.7% back above 23,000 led by EV makers. India's Nifty fell 0.8%, capping its worst week since March, while Taiwan was closed for a typhoon and Thailand for a holiday. In FX, the Bloomberg Dollar Spot Index is little changed to 0.1% higher, though still on track for a second weekly decline, and the DXY trades in a 101.48-101.85 range. The euro is down 0.2% at 1.1195 after a very poor French PMI reading in which all components fell into contraction, while cable halved its losses after the UK PMI beat and trades near 1.3386. The yen reversed early haven-driven gains: USD/JPY is up 0.1% near 157 after falling as much as 0.4% to 156.08, the lowest since Sept. 18, even after a source report that the BOJ will keep rate hikes on a fast track with December in focus. The kiwi tops the G-10 board after ANZ forecast RBNZ hikes at each of the next three meetings, and the Swiss franc lags. In rates, Treasuries extend losses, unwinding a portion of Thursday's aggressive rally as the rout in tech shares eases and oil prices rise further, complicating the inflation outlook. US yields are 3bp to 6bp cheaper across the curve in a bear-flattening move, with 5s30s about 1bp tighter and the 10Y up 4bp near 4.99%, just shy of the 5% line it broke below on Thursday. Bunds and gilts outperform Treasuries by 3bp and 1bp in the 10-year sector and French 10-year bonds by an additional 6bp, as OATs rebound about 30 ticks from Thursday's beating; that erodes some of the flight-to-quality bid for German and US paper. Long gilts continue to outperform ahead of Prime Minister Andy Burnham's first budget next week. There are no Fed speakers with the central bank in its blackout period, and the IG dollar issuance slate is empty so far following muted activity Thursday. Next week brings $69 billion of 2-year notes on Monday, $70 billion of 5-year on Tuesday and $44 billion of 7-year on Thursday, per Goldman. Meanwhile, JPMorgan notes the odds of a December hike have slipped to 88%. “USD/JPY edged higher on profit-taking, but AI jitters remain a JPY tailwind,” said Moh Siong Sim, FX strategist at OCBC Bank Singapore. In commodities, WTI for December delivery is up 1.8% at $101.22 and Brent 1.4% higher at $114.80, the highest since May, as attacks on Saudi Arabia intensified: Saudi air defenses intercepted a Houthi ballistic missile fired at Riyadh, and an IRGC official told Fars that traffic of "illicit vessels" through Hormuz has been "completely halted" after strikes on three tankers Thursday and the destruction of another overnight. President Trump says the US crushed Iran and may want to do it "a little bit more", while UN Ambassador Waltz told the FT the US could still be mired in a stalemate with Iran a year from now. On the supply side, Trump invoked the Defense Production Act to expand petroleum capacity and will release $150 million for refining, while a tanker carrying Russian diesel from Primorsk intermittently signaled New York, potentially the first shipment under the Putin-Trump fuel-supply deal. Goldman's oil desk says the market is already pricing more than $20/bbl of risk premium. Spot gold is flat near $4,030/oz after briefly dipping below $4,000 overnight, silver drops 1.1% to $54.05, and base metals are mixed. US natgas is down 2.5% at $2.73 while UK natgas rises 3.9%. US economic data slate includes the October S&P Global flash manufacturing, services and composite PMIs (9:45am), the final October University of Michigan sentiment, expectations and 1-year and 5-10 year inflation expectations (10am) and the Kansas City Fed services activity index (11am). The Fed is in its blackout period ahead of the Oct. 28 FOMC decision. American Express, SLB, Booz Allen, First Citizens, Flagstar, Rithm Capital and Gentex report before the open. Moody's rating decision on France is due after the close, alongside S&P on Germany and Scope on Italy, while Brazil holds its presidential runoff on Sunday. Market Snapshot Top Overnight News Iran’s message is stark: If the U.S. and Israel restart their air campaign, Tehran will respond with strikes not only on American bases and warships but on airports, pipelines and other civilian targets in the neighboring countries of the Persian Gulf. WSJ The US is preparing for a protracted conflict with Iran, even as the Trump administration hopes its bombing campaigns and economic sanctions will force major concessions from the Islamic republic. Mike Waltz, Donald Trump’s ambassador to the UN, acknowledged that a year from now the US could still be mired in a stalemate with Iran, without a deal on Tehran’s nuclear program or a return to prewar shipping through the Strait of Hormuz. FT The movement of “illicit vessels” through the Strait of Hormuz has “completely halted” after the latest Iranian attacks against ships, Iran’s semi-official Fars news agency cites an official close to the IRGC as saying. BBG A tanker carrying diesel left the Russian port of Primorsk and intermittently signaled New York, potentially marking the first such shipment following a fuel-supply agreement between Vladimir Putin and Donald Trump. BBG SpaceX aims to secure a minimum of 80,000 cell sites across the US, and is in talks with at least one major cellular infrastructure firm to reach that goal. BBG OpenAI, which is seeking to raise around $30 billion in a fresh funding round, is now targeting a valuation of $1.25 trillion during the final stages of negotiations, a $150 billion drop from the $1.4 trillion it was seeking last month. BBG Global hedge funds suffered one of their broadest declines since the Covid pandemic following the stock market selloff on Thursday, according to Goldman Sachs Group Inc.’s prime brokerage desk. BBG Metrics across global bond markets are signaling their biggest risk-off sentiment in more than a year, as a selloff in AI stocks and growing geopolitical tensions caused investors to seek out safe-haven assets. BBG The BOJ may maintain a continued fast pace of rate hikes given price trends and a view at the bank that the impact of increases on the economy so far has been limited, with December the next potential move, people familiar said. BBG Japan’s key price gauge rose above the Bank of Japan’s target level for the first time this year, supporting the case for a widely expected BOJ interest rate hike in December. BBG The ECB will lift rates for the final time in December following a pause next week, economists said. That’s at odds with market bets on far more hikes lying ahead. Central bank data showed inflation expectations among households increased slightly last month. BBG Eurozone flash PMIs for Oct were soft, w/the composite number coming in at 51.9 (down from 53.1 and below the Street’s 52.7), w/a lot of the weakness stemming from the French services sector (due to unrest in that country), while manufacturers reported a spike in input cost inflation. S&P France is bracing for a new round of protests tomorrow, rolling out the military to back up police in a bid to prevent a repeat of last weekend’s riots that led to violence, looting and arrests. BBG Brazil’s President Luiz Inácio Lula da Silva and challenger Flávio Bolsonaro are tied at 50% each of valid votes before Sunday’s runoff election, a new poll showed. BBG SK Hynix scrapped plans for a potential $10 billion US listing of its Solidigm unit. BBG BASF is said to increase its bid for rival Evonik to about €24 per share. BBG The Trump administration is looking to restrict US investment in Chinese biotech companies, proposing the addition of biotechnology to a list of sensitive technologies. BBG Russia's central bank left its key rate at 14.00%, in line with estimates, as Ukrainian strikes spur inflation. BBG US President Trump will deliver remarks in Florida on Friday, Georgia on Saturday and Michigan on Sunday: The White House Goldman's Prime desk says Global Fundamental L/S funds fell 1.4% Thursday, their worst day since July 16, while TMT funds are down 9.6% month-to-date. GS JPM's Feroli expects the October flash manufacturing PMI to decline to 54.5 from 55.9 and the services PMI to ease to 58.0 from 58.8. JPM A more detailed look at global markets courtesy of Newsquawk APAC stocks were mostly negative following the weak lead from Wall St, where a deepening of the tech rout had spurred a flight to quality, while geopolitical concerns linger following reports that the US and Israel have drawn up plans for renewed strikes on Iran, which could be implemented following the US midterm election. ASX 200 was dragged lower by weakness in mining, materials, resources and tech stocks, although the downside was stemmed by some resilience in consumer discretionary, financials, real estate and utilities, while preliminary PMI data was uninspiring, with all main figures in contraction territory. Nikkei 225 briefly retreated beneath the 62,000 level with notable weakness in tech and mining stocks, while the latest inflation data from Japan mostly matched estimates and showed an acceleration from the previous, with headline and core readings back above the 2% price target. KOSPI underperformed as the tech sell-off rolled over into Asia, and with SK Hynix also not helped after it pulled the plug on plans to list its Solidigm unit on the Nasdaq due to regulatory and market volatility concerns. Hang Seng and Shanghai Comp were mixed as the Hong Kong benchmark rebounded from an early dip with the help of resilience in China's top EV makers, while the mainland initially conformed to the mostly downbeat mood. Note, the Taiwan session was suspended amid the approaching typhoon; potentially pushing pressure onto regional peers. Top Asian News China is to accelerate the development of new roles within the AI space, Xinhua reported. Japanese Prime Minister Takaichi told reporters that she would instruct the Minister of Economy, Trade and Industry to consider subsidies for gasoline and other fuel, JiJi reported. China's Politburo held a meeting today and said it is to maintain a high-pressure posture against corruption and will continue to deepen reform efforts and conscientiously implement reform tasks, according to Xinhua. Emphasises effectively strengthening leadership building and enhancing cohesion. Japan's Economy Minister Kiuchi said government decision whether to declare official end to deflation will be made looking comprehensively at CPI, GDP deflator and background behind moves in underlying inflation. Don't think conditions met for the government to declare an official end to deflation. Hope the BoJ guides policy appropriately based on joint statement with the government stipulating need for stable and sustainable price stability. Japan's Finance Minister Katayama said she believes Japanese financial institutions handled PHP issue relatively smoothly and expect them to continue to take necessary action. Cannot comment on revival of gasoline subsidies and will take household situation into consideration. Australia proposes to raise the cap on banks covered bond issuance and opens consultation on financial sector competition. SK Hynix (000660 KS) cancels its plans to list Solidigm on the Nasdaq with an announcement expected soon, according to Korean press. A softer start for much of Europe. Euro Stoxx 50 -0.7% and Stoxx 600 -0.5%, as the US tech-led (SOX -6.7%) pressure reverberated into the region, before pressure in European bourses was then exacerbated by a set of dismal French PMI data and poor earnings from several pertinent names. Following earnings, Kering, -11.8%, after missing marginally on overall revenue, but more pertinently as they highlighted traffic as an ongoing constraint and particularly within China, not expecting a H/H margin performance improvement and Q4 thus far has been in-line with Q3. Sticking in France, L’Oreal, +4.5%, gains after Q3 sales topped expectations, and the Chinese market only slowed a bit. Also hit, and at their lowest ever share price, Volvo Car, -26.7%, pressured by a dire set of earnings where China revenue fell near 50% Y/Y. European sectors hold a strong negative bias. Unsurprisingly, Energy takes the top spot, given the strength in underlying oil prices; Construction & Materials, and Real Estate complete the top three. To the downside, Telecoms is the clear underperformer, weighed by the SpaceX update (see below), with Industrials following closely behind. US equity futures (ES -0.1% NQ U/C RTY -0.5%) are trading mixed; the tech-heavy NQ is faring a little better vs peers, whilst the RTY lags. The relative outperformance comes as tech rebounds a touch from the hefty losses seen in the prior session, with focus on SK Hynix (+5.2% pre-market), after the Co. has paused its Solidigm IPO. Top European News SpaceX (SPCX) in talks to access 80,000 cell sites for new network. OpenAI is raising up to USD 30bln in funding round at a USD 1.25tln valuation, led by UAE investors, according to CNBC, citing sources; OpenAI is negotiating a commercial deal that would secure more computing capacity from the UAE. UK is expected to make a pre-budget announcement on an AI package on the weekend, Politico reported; Housing Secretary Rayner is booked for the Sunday media rounds, potentially indicating a Housing, Communities & Local Government related update. FX G10s were initially mixed against the USD, but now display a negative bias as the USD gradually moved higher alongside upside in energy prices. The Kiwi outperforms vs peers after hawkish RBNZ calls from analysts at ANZ; the Swiss Franc is the relative underperformer, as yield differentials widen once again. EUR was mildly pressured following a very poor French PMI reading, whereby all components surprisingly fell into contractionary territory. DXY currently holds within a 101.48 to 101.85 range, a touch firmer this morning, but net-weaker since the start of the week. The data docket lacked any Tier-1 US data and Fed speak, so USD action was largely dictated by credit-related woes, which hampered sentiment in the US. Next week, attention will be on the FOMC Policy Decision, where rates are expected to be kept on hold. The Kiwi is the mild outperformer this morning, and holds towards the upper end of a 0.5679 to 0.5699 range. Strength which comes after analysts at ANZ expect the RBNZ to deliver rate hikes at the next three meetings, citing Q3 core inflation data. The CHF is the slight laggard this morning, paring some of the strength seen in the prior session, as US yields rebound a touch today. Similarly, JPY holds towards the bottom of the pile, but faring a touch better vs its haven-counterpart. This comes after a source report which suggested that the BoJ is set to keep rate hikes on a fast track, adding that interest rates are still far from neutral. Only very mild strength was seen in JPY following this report, given it does not shift market expectations; money markets assign c. 80% chance of a hike in December. USD/JPY currently trades towards the upper end of a 156.07-157.16 range. Central Banks BoJ is expected to continue rapid rate hikes, with focus on December, sources suggest; report suggests that interest rates are still far from neutral, adding that inflation needs to stabilise. BoJ Financial Stability Report: Japan's financial system has been maintaining stability on the whole. European ECB Consumer Inflation Expectations (Sep) 3.1% (Prev. 3%). Former German Finance Minister Kukies is said not to succeed Schnabel at the ECB. ANZ sees RBNZ raising rates at next three meetings, citing the Q3 core inflation data. PBoC injected CNY 258bln in overnight reverse repos, while 7-day reverse repo volume is at zero. PBoC set USD/CNY midpoint at 6.7180 vs exp. 6.6758 (prev. 6.7195). Indonesia's central bank official said rupiah movement still manageable following MSCI announcement last week and said it will respond if needed to ensure supply and demand in the FX market. Monetary Authority of Singapore, Malaysia Central Bank and Bank of Thailand are partnering on cross-border digital money settlement. Fixed Income A mixed start for benchmarks, as the complex takes a bit of a breather from the recent rally in core counterparts as growth concerns dominated the narrative for debt that is not dominated by domestic political and fiscal concerns. USTs are lower by a few ticks, in a pullback from the 106-16 high which printed on Thursday, rather than in reaction to a fundamental development, though energy continues to tick higher and the risk tone is gradually improving, Currently, holds at the base of a 106-05 to 106-14 band. Bunds essentially flat, just off lows in a 122.13-54 band. Upside was seen through the morning’s first Flash PMI from France, with Bunds peaking on the German series but then waning and proving relatively unreactive to the EZ-wide figure. For the EZ, the series points to growth of 0.3% in the period, a touch slower than September’s implied pace, but still robust enough to keep the ECB on track to tighten, and perhaps more so than currently assumed by desks, particularly as inflationary pressures mount; a dynamic that may explain the pullback in Bunds following the German data and into the EZ print. OATs are, of course, the focus for today. This morning’s Flash PMIs were dire. All three main components fell into contractionary territory. A finding that does not bode well, as recent civil unrest and spread widening will not have been fully accounted for by the respondents. Further, we still await Moody’s verdict on the sovereign tonight, with a downgrade a real possibility given recent events and price action, and then further protest action on the weekend. As it stands, OATs are firmer by around 30 ticks, in a bit of a rebound from the c. 50 ticks of pressure seen on Thursday, but still set to end the week with downside of over 120 ticks as things stand. Given this, the OAT-Bund 10yr yield spread has narrowed by a handful of bps on the session overall, but it did commence it at a fresh high of 176bps; at wides since 2011, when 191bps printed. Gilts are flat and marginally lag European peers within 85.01-36 parameters in a modest reversal of the prior day's action. Overnight focus showed Chancellor Healey continues to underscore a pro-business approach, and was absent of anything which changes the majority view of the budget passing without trouble. The morning's retail sales data contracted at a greater pace than expected, October Flash PMIs were particularly strong, and chime with expectations for a November BoE hike. UK DMO said it is to hold a tender for up to GBP 1bln of 0.25% Treasury Gilt 2031 on October 29. China's Finance Ministry auctions 30-year bonds at 2.06% yield. Australia sold AUD 1.0bln in 1.0% November 2031 bonds, avg. yield 4.8708%, bid-to-cover 4.32. Commodities Crude is firmer this morning, with WTI and Brent up by 1.6% and 1%, respectively. Benchmarks eased a touch off earlier highs, but then reversed this following reports that the Houthis fired missiles at Saudi interests. WTI currently holds within a USD 98.84-101.30/bbl range, whilst Brent sits at the upper end of a USD 112.74-114.72/bbl band. Strength today comes as the geopolitical environment remains tense and rhetoric remains punchy. Starting with US-Iran, the IRGC continues to strike ships traversing the “illegal” route, with little fresh indications of diplomacy. President Trump suggested that Iran was fabricating reports of these attacks, whilst warning that they may want to “crush” Iran a little more. On the Saudi-Houthi front, the risk of further supply disruptions remain, given that tit-for-tat strikes continue. Over in Israel, PM Netanyahu held an emergency meeting to discuss a recent attack on five IDF soldiers in the West Bank; he eventually decided to close off the area. This decision will only bolster speculation that the PM would like to postpone the election; a former Israeli premier had previously accused Netanyahu of this, arguing that preparing infrastructure to go to war is a way to delay the Knesset election. Spot gold is flat and trades around the USD 4k/oz mark, currently holding within a USD 3,986-4,032/oz range. The yellow metal is net-lower since the start of the week, with pressure facilitated by inflationary concerns, related to elevated energy prices. It seems as if the gold remains worried about the inflationary implications of the war, whilst haven counterparts (USTs/JPY) have recently been focusing on AI funding concerns and potential hits to growth. Base metals are mixed this morning; 3M LME copper currently trades firmer by around a percent, and holds within a USD 14,059.2-14,270/t range. UAE Environment Ministry said a tanker oil spill is impacting beaches in Umm al-Quwain. Japan government considers cutting gasoline subsidies from December, according to officials. US President Trump said he will release USD 150 mln to increase US refining capacity. US President Trump invokes Defense Production Act for petroleum capacity and waives Section 303 rules to expand oil capacity. Trade/Tariffs French Trade Minister has requested a US tariff exemption covering cognac and champagne. German President Steinmeier to visit China on the 27th of October. US Trump Admin is looking to restrict US investment in Chinese biotech companies. China's Commerce Ministry urges the US to correct its approach on research ties between the two nations. Geopolitics: Middle East US President Trump said regarding Iran that they have crushed the Islamic Republic and may want to do it a little bit more. US President Trump's ambassador to the UN Waltz said the US is prepared for long stand-off with Iran and acknowledged that the US could still be mired in a stalemate with Iran a year from now, according to FT. Iran's IRGC threatens to target US bases if commercial ships continue transiting Strait of Hormuz, according to Fox News. IRGC official said "today we not only possess power but also the will to use power"; "if the enemy wants to commit the slightest folly again, we will deliver an unprecedented blow", Al Mayadeen reported. IRGC official said "traffic of violating vessels in the Strait of Hormuz has been completely stopped", Fars reported. "An informed official close to the IRGC Navy announced that after the destruction of the navigational aid systems used by the violating vessels, the hitting of 3 oil tankers yesterday and the destruction of another violating oil tanker last night, the traffic of violating vessels has been completely stopped". "This informed official warned that if oil smuggling resumes, the dealing with violating vessels and their supporting technical systems will be carried out with much greater severity". "He also emphasized that the renewed air intervention of the US military and support for oil smuggling will be met with a more direct and decisive response, and the US military will be responsible for the consequences". Iran's Foreign Minister Araghchi called out French President Macron regarding his JCPOA stance contradictions. BeamTracker reported sound of an explosion was heard in Strait of Hormuz area, with cause and origin not yet known, although the site of the explosion is a location that has previously been the passage point of violating ships in the strait. Saudi Arabia has launched a "raid" on eastern Taiz within Yemen, Sabereen reported. Two Saudi airstrikes targeted the water authority building in Al Hazm district of Al Jawf province, Yemen. Saudi‑led coalition said air defences intercepted and destroyed ballistic missile launched by Houthi militia towards Riyadh. "Missile launch by the Yemeni Armed Forces towards Saudi interests", via Sabereen. Saudi sources report loud explosions heard in Riyadh, according to Al Masirah. Yemeni forces warned airlines again not to enter Saudi airspace or airports, according to Nour News. Israeli PM Netanyahu said "I have instructed the security forces to impose a siege on the city of Hebron and to completely close off the West Bank". US State Department spokesperson said there is no US-Turkey proposal regarding Lebanon and no US-backed proposals to change Lebanon's political structure. Geopolitics: Ukraine Russia's Defence Ministry said Russia hit a railcar depot in the Poltava region in Ukraine and a cargo vessel in the Black Sea, while it also hit the Port of Vilkovo in the Odesa region. Ukraine energy company DTEK said a Russian attack hit one of its power stations. Ukraine seeks to move customs checks inside the EU to avoid Russian drones, with Kyiv in discussions with Poland and Slovakia about moving customs checks into their territories to try and make trucks safer, according to FT. Ukraine Air Force reported guided bombs striking Donetsk and Dnipropetrovsk. EU considers sanctions reprieve for Chinese fabric-maker accused of aiding Russia, according to SCMP. Crypto Bitcoin is a touch lower this morning and hovers around the USD 82k mark. US Event Calendar 9:45am: Oct P S&P Global US Manufacturing PMI, est. 55.5, prior 55.9 9:45am: Oct P S&P Global US Services PMI, est. 58.0, prior 58.8 9:45am: Oct P S&P Global US Composite PMI, est. 57.6, prior 58.4 10:00am: Oct F U. of Mich. Sentiment, est. 46.3, prior 46.3 10:00am: Oct F U. of Mich. Expectations, est. 47.1, prior 47.3 10:00am: Oct F U. of Mich. 1 Yr Inflation, est. 4.7%, prior 4.7% 10:00am: Oct F U. of Mich. 5-10 Yr Inflation, est. 3.5%, prior 3.5% 11:00am: Oct Kansas City Fed Services Activity Central Bank Speakers None: the Fed is in its external communications blackout ahead of the Oct. 28 FOMC decision DB's Jim Reid concludes the overnight wrap As storm Austen hits these shores this morning, clouds kept darkening for markets yesterday, as the wobbles of recent weeks all collided at once. First, there was mounting stress around France, with the Franco-German 10yr spread (+14.8bps) seeing its biggest daily widening since the initial pandemic turmoil in March 2020. Second, AI fears continued to gather pace, with the Philly semiconductor index (-6.72%) falling to its lowest level since July, which dragged down equities more broadly. And third, the latest geopolitical fears meant oil prices kept rising as well, with Brent crude (+4.00%) hitting a 5-month high of $113.17/bbl. So collectively, those concerns drove a huge risk-off move, with the 10yr Treasury yield (-16.6bps to 4.95%) seeing its biggest daily decline since August 2024. Although Asian markets are also down, US and European equity futures are relatively flat as I type so the sell-off hasn't accelerated overnight. Today we see global flash PMIs which will as ever be interesting. Note that exactly a month ago today, the US flash numbers were strong and helped drive an almost 15bp increase in both 2yr and 10yr Treasury yields. This felt like a very outsized move relative to the importance this data usually has in the US, but it showed the mood in global bond markets at the time. That couldn’t have been further from the mood in the last 24 hours so an interesting set up for today. It’s difficult to know where to start given everything going on at the moment, but it was France that led the day’s biggest market moves yesterday. There wasn’t an immediate catalyst for the selloff, but the other two stress points (AI growth fears and higher oil prices) both hit risk appetite, which left France as the most vulnerable given it was already facing market pressure. So all that pushed the Franco-German 10yr spread up to 174bps, taking it to levels last seen at the peak of the sovereign crisis in November 2011. Moreover, the 10yr spread now isn’t too far away from its single-currency-era peak that month, when it closed as high as 189bps. Those French moves were part of a clear risk-off pattern rather than a global bond selloff, as the 10yr OAT yield (+5.8bps) hit a post-2002 high of 5.07%, whereas the 10yr bund yield (-8.7bps) fell back instead to 3.32%. Moreover, those moves cascaded elsewhere, with the Italian 10yr spread to bunds (+8.7bps) widening to 124bps, the most since the Liberation Day turmoil in April 2025. And the stress was clear from other asset classes, as the STOXX Banks (-4.17%) hit a 4-month low, some -14% off their recent highs in mid-September. The Euro also weakened -0.14% against the US Dollar, while defensive currencies including the yen (+0.87%) and the Swiss France (+0.48%) benefited. Given the latest stress, yesterday led to fresh questions about whether the ECB would even be able to hike rates again this year. Admittedly, that’s still the baseline market expectation. But with a 69% chance of another hike priced by December this represented a sharp pullback from 90% at the close on Wednesday. So doubts on the sustainability of further ECB hikes are rising. Indeed, the market moves were also creating a broader tightening in financial conditions, with the STOXX 600 down -1.05%, whilst European HY spreads widened +20bps to their highest level since April 2025 at 369bps. As all that was happening, yesterday also brought a fresh wave of concern around AI-driven growth, reversing some of the optimism from earlier in the week. So it was a rough session for several of the most affected names, and the Philly semiconductor index (-6.72%) had its worst day since June, whilst CoreWeave’s share price (-10.06%) fell to its lowest since May 2025. That carried over into the CDS space too, where CoreWeave’s 5yr CDS widened +66bps to 1162bps. After its results the night before, Meta (-6.98%) fell and its CDS widened +7.2bps to 118bps. That marked a sharp turnaround from the initially positive after-market reaction to its results on Wednesday night as the sentiment around the company’s rising capex plan soured. Put together, this all helped drive the broader indices lower, with the S&P 500 (-1.21%) posting its worst daily performance since July, whilst the NASDAQ (-2.60%) had its biggest decline since June. However, note that the main defensive sectors rallied strongly, with consumer staples (+3.11%) and utilities (+1.98%) leading the way as two thirds of S&P 500 constituents moved higher, helped by the fall in yields. This also marked the biggest outperformance of the equal-weighted S&P 500 (+0.77%) over the market cap index since July 2024. The other important theme yesterday was the latest jump in energy prices, driven by mounting fears of a fresh escalation in the Middle East. Indeed, yesterday saw Brent crude (+4.00%) close at a 5-month high of $113.17/bbl, which added to fears about more persistent inflation. Moreover, European natural gas futures (+2.99%) hit another post-2022 high of €90.04/MWh, which particularly hit the continent as growth concerns interacted with the fiscal stress. In part, the latest moves followed a New York Times report we mentioned yesterday, saying that the US and Israel had drawn up plans for renewed strikes against Iran after the midterm elections. So that drove speculation about some kind of escalation after the November 3 vote. And we also heard the Houthis claim a recent attack on Saudi Arabia’s Yanbu oil site, which follows a drone attack at a Saudi oil field the previous day. In the midst of all these market pressures, an interesting theme was the flight to US Treasuries, which returned to its traditional risk-off role in periods of turmoil. In fact, the 10yr yield fell -16.6bps to 4.95%. Moreover, that came despite some strong US data, demonstrating how the financial stress was weighing on sentiment rather than the fundamentals. For instance, the weekly initial jobless claims fell to a 3-month low of 194k in the week ending October 17 (vs. 200k expected). And in turn, that pushed the smoother 4-week moving average to its lowest since September 2022, back when the unemployment rate was just 3.5%. Asian equities are weak but the sell-off hasn't accelerated so far and most indices are well off their opening lows. The Nikkei (-0.90%) and KOSPI (-0.89%) are recovering from notably higher losses. In China, the CSI 300 (-0.54%) and Shanghai Composite (-1.20%) are at 15-month lows but may recover a bit after the lunch break. The Hang Seng (+0.58%) has rallied as I've been writing this. S&P 500 (-0.13%), Nasdaq (-0.03%) and Stoxx (-0.08%) are only very slightly lower, showing the sell-off has stabilised for now. In Japan, September inflation rose as expected overnight, with core CPI accelerating to a nine-month high of +2.1% y/y and moving above the BOJ’s target, supported by higher energy costs and yen weakness. Core-core CPI increased to +2.4% from +1.9%, while headline CPI rose to +2.1% from +1.9%. Meanwhile, JGBs are rallying with global bonds, with 10-year yields down -9.5bps to 2.77% and 5-year yields falling -7.8bps to 2.20%. Separately, Japan’s manufacturing sector expanded at a slower pace in October, while services activity strengthened. The flash manufacturing PMI eased to 53.3 from 54.1, while the services PMI improved to 52.0 from 51.3. The composite PMI held steady at 52.3, signalling a 19th consecutive month of private-sector expansion. Looking at the day ahead now, data releases will include the October flash PMIs from Europe and the US, along with UK retail sales for September, and the University of Michigan’s final consumer sentiment index for the US in October. Otherwise from central banks, we’ll get the ECB’s Consumer Expectations Survey for September, and we’ll hear from the ECB’s Cipollone. Tyler Durden Fri, 10/23/2026 - 08:21