5 Things to Know in Markets Today

1. AI selloff meets surging oil prices

AI selling and surging oil prices are putting risk under pressure, but Treasuries are providing an important release valve. US 10-year yields dropped a full 19bps yesterday as worries about the Eurozone favoured the US and a brutal selloff in AI names lowered issuance worries.

Rates down across the board and oil at $114 suggest the pressure in credit was less about front-loaded inflation worries and more structural concerns relating to fiscal and AI buildout spending. The US 10-year yield added a couple of bps this morning, while France's 10-year OAT yield is down 3bps to 5.05% having yesterday blown out completely.

Treasuries being bid on haven demand is easing pressure in rates, which is helping prevent what might otherwise be a tech selloff from turning into something much bigger, at least for now.

2. Oil hits $114 as Iran risks build

Oil hit a fresh five-month high as worries about the US-Iran situation continue to percolate. Heightened attacks on Saudi Arabia and reports that the US and Israel are ready to strike Iran again soon, potentially after the midterms, have pushed Brent crude to $114.

It looks like the escalation risk is increasingly tied to the lead-up to the US midterms and Israeli elections, with the market bidding up the prospect of a reignition of kinetic conflict. There is also some chatter around Israel's elections and the potential for Netanyahu to escalate the conflict and declare a national emergency should it look like his party will lose its majority.

European stock markets were down again on Friday, extending losses from the prior session, although selling has eased a bit. The DAX was off 0.3% after falling 1% on Thursday, while the FTSE 100 was down 0.3%. Amsterdam traded slightly higher, with Shell up 1.3% and ASML also gaining.

3. Tech wreck, but not yet a total derisking

US futures are looking a bit better after a bruising session for tech on Thursday. The Nasdaq Composite fell 2.6% and the Nasdaq-100 dropped 2.9% to test the August lows, while the Dow Jones ended the day flat near 53k. For now, this looks like a tech wreck rather than a total derisking and deleveraging event.

It was the worst day for the tech-heavy Nasdaq since June, while the S&P 500 had its worst day since July, declining 1.2%. Meta dragged heavily, down 7%, perhaps as the introduction of new non-voting shares and the large amount of funding required to finance AI capex raised worries about dilution despite strong earnings.

Across semiconductors, selling was aggressive, with AMD down 8%, Micron 6% and Nvidia 4%. Neoclouds also took a beating, with CoreWeave down 10%. There is a lack of conviction in buying the dip as the AI financing narrative remains fragile. Nvidia boss Jensen Huang added some fuel to the fire by saying that while demand for neoclouds is "off the charts", capital is scarce and hurting growth.

4. Investors rotate towards staples

The split between the Dow and Nasdaq tells the story. While technology was hammered, the Dow finished broadly flat, with Home Depot up 4.3%, Procter & Gamble up 4.9% and McDonald's rising 2.6%.

Staples are telling the story as investors question the hyperscaler-AI capex narrative and look for places to put their cash to work where it won't get eroded by inflation and where demand remains reliable.

Asia showed similar volatility. The Kospi fell as much as 4% before ending up 0.3% for the day, as SK Hynix shares closed 4.4% higher after the chipmaker halted plans for a New York IPO of its US subsidiary Solidigm.

5. UK resilience points towards a BoE hike

Some more good news for the UK economy this morning, with business activity growth accelerating to its fastest pace since February, when all the talk was of rate cuts and before the Iran war.

It also showed payroll growth for the first time since hiring declined after the 2024 Budget. Since then, payrolled employees have declined materially, so this is a big win. The data confirms that the UK economy has been remarkably resilient and should seal the deal on a hike by the Bank of England, reversing my previous call.

At the same time, GfK's consumer confidence survey paints a much bleaker picture, with an 11-point drop between September and October, while separate data shows retail sales fell more than expected last month.

The job of the Monetary Policy Committee is never easy.