12 – 16 October 🗓️
😰 Macro: Inflation reignites Fed concerns
U.S. inflation took centre stage this week. September headline CPI rose 0.6% month-on-month and 3.7% year-on-year, up from 3.4% previously. Although the monthly headline figure matched expectations, annual inflation came in hotter than forecast. Core CPI also surprised to the upside, rising 0.3% monthly and 2.6% annually. Higher gasoline prices remained a major driver.
The report revived concerns that the Federal Reserve may need to keep rates higher for longer, or even raise them again. Markets briefly increased their expectations of another rate hike, adding fresh uncertainty to the outlook for borrowing costs.
⚠️ Equities: AI optimism meets financing reality
Technology and semiconductor stocks came under heavy pressure as investors reassessed the cost of financing the AI boom. Higher interest rates make future earnings less valuable today and increase the burden on companies relying on debt to fund massive infrastructure investments.
The Nasdaq and S&P 500 fell sharply following Wednesday’s inflation release. Concerns around AI infrastructure financing added to the sell-off, with CoreWeave among the companies facing particularly strong pressure. By Friday, markets had stabilised somewhat, but technology remained a key source of weakness.
🔄 Bonds & FX: A week of reversals
Initially, hotter inflation strengthened the U.S. dollar and pushed Treasury yields higher as traders priced in a more hawkish Fed. However, the move reversed as investors sought the relative safety of government bonds. Falling U.S. yields subsequently reduced the dollar’s appeal, leaving it on course for its first weekly decline in five weeks.
The euro recovered from its recent lows as the dollar weakened, highlighting how quickly currency markets can reverse when rate expectations change.
🛢️ Commodities: Oil remains the wildcard
Brent crude stayed above $100 a barrel, supported by escalating Middle East tensions and concerns over supply disruptions. Expensive energy complicates the inflation outlook: it pressures consumers and businesses while making it harder for central banks to ease monetary policy. Gold initially weakened as the dollar and yields rose, then recovered as both retreated.
🗺️ The bigger picture
The market is shifting from “How much can AI grow?” to “How expensive will it be to finance that growth?”
Inflation, energy prices and interest-rate expectations are now challenging the assumptions behind the AI-led rally. Strong earnings alone may not be enough if borrowing costs stay elevated and investors become more selective about which companies can turn AI investment into sustainable cash flow.
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