US Market Wrap: Tech hit on AI concerns, while Middle East tensions grow

• SNAPSHOT: Equities down, Treasuries up, Crude up, Dollar down, Gold down.
• REAR VIEW: US and Israeli militaries have reportedly developed plans for renewed strikes on Iran after the US midterm elections; META earnings beat, yet guidance underwhelms; Trump said Iran driving up oil before midterms; Aramco facility in Saudi Arabia reportedly goes on fire; US Initial Jobless Claims little changed W/W; TSLA revenue growth disappoints; Soft NZ CPI; Kering ADR sinks after earnings.
• COMING UP: Data: Global Flash PMIs (Oct), Japanese CPI (Sep), UK Retail Sales (Sep), Canadian Retail Sales (Sep). Events: CBR Policy Announcement (Oct). Speakers: ECB's Cipollone. Supply: Australia. Earnings: American Express, SLB, Autoliv, Safran. Credit Ratings: Moody's on France; S&P on Germany; Scope on Italy.

US equity indices were hit on Thursday as weakness in AI-related names weighed, despite gains in the equal-weight gauge (RSP +0.7%). Earnings beats from Lam Research (LRCX -11.8%) and Meta (META -7.0%) were not well received, with the latter's limited FY27 guidance sparking concerns over Meta's spending, margins and funding, resulting in its 5yr CDS hitting a new all-time high. SpaceX (SPCX) fell 9.1%, reversing Wednesday's post-earnings gains, with Tesla (TSLA -3.0%) also seeing weakness post-results.

Yields fell sharply once again, with 7yr and 10yr yields plunging below 5.0% as the haven bid remained in full force. JPY was again saw a haven bid, as the dollar juggles downside risks to growth and yields, though French fiscal concerns have left EUR/USD little changed this week. NZD underperformed following a softer-than-expected Q3 CPI reading, although a rate hike at next week's RBNZ meeting remains the consensus.

Oil prices were supported by a geopolitical risk premium following renewed Houthi attacks on Saudi Arabia's Aramco facility in Yanbu that resulted in a fire, though the Saudis are yet to confirm. From Iran, the IRGC Navy said four oil-transfer vessels were struck in the Gulf and three hit mines near Hormuz, warning that US efforts to encourage passage could prompt strikes on US bases.

Precious metals were dragged lower by the risk-off mood, bringing spot gold to lows of USD 4,021/oz and silver to new YTD lows of USD 54.53/oz.

T-NOTE FUTURES (Z6) SETTLED 1 POINT AND 9+ TICKS HIGHER AT 106-13

7- and 10yr yields plunge beneath 5% amid persistent haven bid due to AI concerns. At settlement, 2-year -16.8bps at 4.640%, 3-year -17.7bps at 4.713%, 5-year -18.0bps at 4.771%, 7-year -18.2bps at 4.848%, 10-year -16.6bps at 4.953%, 20-year -14.0bps at 5.326%, 30-year -12.5bps at 5.285%.

THE DAY: Yields continued their heavy decline as AI growth concerns remained the driving factor, leaving tech stocks down over 3%. One potential factor behind the Treasury bid is the high-yield market being effectively on hold until after the midterms, with investors wanting permitting and regulatory issues "substantially resolved", CNBC reported, citing credit desks. Meta's Q3 earnings beat, but little detail on FY27 sparked concerns over spending, margins, and funding, ultimately resulting in Meta's 5yr CDS hitting an all-time high.

US data was a non-event, as Initial and Continuing Claims signalled a low-hire, low-fire environment. In the US afternoon, the 5yr TIPS auction tailed by 0.7bps, notably weaker than the prior 0.5bps stop-through. This reflects the recent sharp shift in sentiment on the inflation outlook, as weaker demand from an AI drawdown is seen as more than offsetting the inflationary upside from higher oil prices, as highlighted by money markets paring year-end Fed rate hike bets, no longer fully pricing a 25bps hike (now 20.3bps vs. 25.3bps yesterday).

In Europe, French turmoil persisted, with French yields rising despite European government bond yields being largely lower on the day (BTP yields also higher), leaving the OAT:Bund 10yr spread exceeding 175bps.

Supply

• US sold USD 26bln of 5yr TIPS; tailed 0.7bps.
• US sold 4-wk bills at a high-rate of 3.945%, B/C 2.82x; sold 8-wk bills at a high-rate of 4.015%, B/C 2.57x.
• US to sell USD 69bln in 2-year notes, USD 70bln in 5-year notes, USD 44bln in 7-year notes and USD 28bln in 2-year floating-rate notes
• US to sell USD 95bln of 13-wk bills and USD 82bln of 26-wk bills on October 26th; USD 95bln of 6-wk bills on October 27th; all to settle on October 29th.

STIRs/OPERATIONS

• Fed Hike Pricing via CME FedWatch: Oct 1.8bps (prev. 3.7bps), Dec 20.3bps (prev. 25.3bps)
• EFFR at 3.88% (prev. 3.88%), volumes at USD 110bln (prev. USD 110bln) on October 21st
• SOFR at 3.88% (prev. 3.88%), volumes at USD 2.942tln (prev. USD 2.925tln) on October 21st
• NY Fed RRP op demand at USD 0.351bln (prev. USD 0.237bln) across 2 counterparties (prev. 13) on October 22nd

WTI (Z6) SETTLED USD 2.32 HIGHER AT 99.47/BBL; BRENT (Z6) SETTLED USD 4.35 HIGHER AT 113.17/BBL

The crude complex saw notable gains on Thursday amid renewed Houthi attacks on Saudi Arabia, which fuelled escalation worries in the region. On that, the Houthis said they attacked the Defence Ministry in Riyadh and an Aramco facility in Yanbu, albeit with no Saudi confirmation. However, following these reports, Aramco reportedly instructed staff to evacuate its Dhahran HQ and work from home. Along similar lines, the US ordered non-essential diplomatic staff and their families to leave Saudi Arabia. Overall, the Middle East situation remains very fragile as the IRGC Navy stated four vessels transferring oil cargoes were struck in the Persian Gulf, while three other vessels hit sea mines yesterday west of the Strait of Hormuz, warning the US that efforts to encourage passage could result in strikes on US bases. WTI and Brent hit peaks of USD 100.17/bbl and USD 113.40/bbl, respectively, against earlier troughs of USD 97.72/bbl and USD 109.81/bbl.

CLOSES: SPX -1.43% at 7,646, NDX -2.90% at 28,959, DJI +0.02% at 52,867, RUT -0.17% at 2,776

SECTORS: Communication services -3.00%, Technology -3%, Consumer discretionary -1.71%, Industrials -0.91%, Energy -0.74%, Materials +0.33%, Real estate +0.92%, Financials +1.18%, Health +1.33%, Utilities +1.98%, Consumer staples +3.11%.

EUROPEAN CLOSES: Euro Stoxx 50 -1.96% at 6,086, Dax 40 -1.10% at 25,362, FTSE 100 -0.30% at 10,721, CAC 40 -1.39% at 7,811, FTSE MIB -2.54% at 48,381, IBEX 35 -2.11% at 18,916, PSI -1.46% at 9,238, SMI -0.06% at 14,544, AEX -1.10% at 1,130

STOCK SPECIFICS:

• Meta Platforms (META): Earnings beat, raised low-end of FY capex range; FY27 outlook limited.
• Tesla (TSLA): Cautious outlook for Optimus, delayed robotaxi revenue, and high expected chipmaking costs overshadowed EPS beat.
• IBM (IBM): Earnings beat; meanwhile, gross margin declined w/ consulting rev. flat.
• Lam Research (LRCX): Guidance underwhelmed some expectations.
• Blackstone (BX): Revenue missed.
• Procter & Gamble (PG): Earnings beat.
• Comcast (CMCSA): Adj. EPS & rev. beat.
• SAP (SAP): Cloud revenue and backlog growth beat expectations.
• Alibaba (BABA), PDD Holdings (PDD), JD.com (JD): Chinese regulators reportedly summoned major e-commerce platforms over product quality.

The Dollar Index was lower on Thursday amid light currency-specific newsflow, as havens JPY and CHF outperformed given the risk-off tone. As for the Greenback, the geopolitical situation, as expected, remains in focus, and concerns over an escalation continue to increase after further Houthi attacks in the region. Once again, there was no tier-1 data out of the US, while Initial Jobless Claims continued to hover around the 200k mark, reflecting the low-hire, low-fire economy. Earnings remain a key driver, and both Tesla and Meta saw losses after their reports, which weighed on wider risk and fuelled a further AI sell-off.

In G10 FX, safe-haven FX outperformed on the aforementioned risk tone, with USD/JPY trading in a 156.69-158.25 range, while the Loonie was the next best performer on surging oil prices. The Antipodeans were the laggards, with the Kiwi sitting at the bottom of the pile, weighed on by cooler-than-expected inflation metrics. However, inflation remains elevated, and money markets continue to price in a hike at next week's RBNZ meeting. Back to the Yen, Japan's Rengo union reportedly seeks a 6% wage increase for 2027 and maintains a minimum wage hike benchmark of 5% or more in its 2027 policy. As a reminder, Rengo is Japan's largest national trade union confederation, and its wage talks are closely watched by the BoJ given the implications for prices and inflation.

EUR saw slight losses, as concerns in France remain rife. MUFG writes that the sell-off in French government bonds could be extended by Moody's sovereign credit rating review, scheduled for Friday evening. Moody's currently rates France at Aa3, one notch above its S&P and Fitch ratings.

A wrap of this shape, cap-weighted indices down hard while the equal-weight gauge rises, is the classic signature of a concentrated unwind in crowded megacap leadership rather than broad-based de-risking, and past episodes have tended to hinge on whether the guidance concerns stay idiosyncratic or get read across the whole AI capex complex. The cross-asset pattern here is internally consistent: a growth scare, not an inflation scare, with the belly of the Treasury curve leading the rally, breakevens softening, and rate-hike pricing being pared even as oil rises, since crude strength sourced from geopolitical supply risk is typically treated as a tax on growth rather than a reason to tighten. The gold pullback alongside a haven bid fits the established pattern of risk-off sessions where metals are sold to meet margin or take profit on extended longs, and tends to reverse once equity volatility stabilises. The widening OAT-Bund spread into a scheduled sovereign rating review is the more durable tell: spreads into rating events have historically stayed bid until the review lands, and an adverse outcome on a large core issuer has in the past fed through to periphery spreads and the euro rather than staying contained. The follow-ons are whether other AI-linked issuers' credit metrics follow the single-name CDS deterioration, whether Riyadh confirms the facility damage (confirmation has typically added a further leg to the risk premium, denial has faded it), and the flash PMIs as the first read on whether the growth scare shows up in the data.