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We open the new week with markets attempting to digest major shake-ups across several key fronts. On one hand, we see a clear pullback in the oil market triggered by Washington's surprising decision to suspend a portion of new sanctions against Russia, standing in sharp contrast to last week's Middle East supply concerns. On the other hand, fears continue to resonate regarding the financing costs of the AI technology revolution, which have driven semiconductor company valuations to levels not seen in years. Complementing the macroeconomic backdrop are bittersweet data from China, showing that the world's second-largest economy is still expanding in a highly uneven manner.
Geopolitical Environment
- Softening of US sanctions stance on Russia cools the oil market. President Donald Trump signed an executive order on October 16 suspending the implementation of a portion of new sanctions measures and tariffs under the Graham Act (which were set to take effect on October 18). The White House reserved this move, and Secretary of State Marco Rubio added that the administration could take up to 60 days to assess the economic impact of this decision. Notably, earlier this month (October 9), Trump reported an agreement on Russian diesel supplies to global markets, intended to help lower fuel prices ahead of the US midterm elections. In reaction to the pause on new restrictions, Brent crude fell on Monday by about 1.8% to $107.92 per barrel, giving markets a breather after a jittery previous week. (Sources: The White House; Reuters)
- Social unrest in France hits Paris bourse and the euro. A wave of violent protests swept across France over the weekend. The French Ministry of the Interior reported nearly 2,400 arrests and injuries to nearly a thousand law enforcement officers, while President Emmanuel Macron strongly condemned the violence in a Sunday address. Financial markets reacted nervously to this outbreak of socio-political instability. In Monday trading, France's benchmark stock index, the CAC 40, dropped by around 1%, the common European currency weakened, and the yield on French 10-year government bonds (OATs) rose by 6 basis points to 4.84%. News agencies also noted a widening of the spread (yield differential) between French bonds and safer German Bunds, a classic sign of investors fleeing local risk. (Sources: France 24; Reuters)
Today's Highlights
- A painful reality check on AI revolution costs. Continuing the theme from last week, when the market began seriously questioning the profitability of massive investments in artificial intelligence infrastructure. CoreWeave (a cloud infrastructure provider) found itself in the spotlight—the yield on its 2031 maturity bonds briefly topped 16%, and the cost of its CDS (Credit Default Swaps—instruments insuring against default) surged past 1,000 basis points. These warning signals from the debt market spilled over into equities: the Philadelphia Semiconductor Index (the primary benchmark for the chipmaker sector) tumbled 11.4% last week, marking its longest losing streak since the 2008 financial crisis. Adding fuel to the fire, consulting firm Gartner estimated in a report that by the end of 2030, as much as $3.5 trillion in AI infrastructure spending could face impairment, with 80% of next-generation cloud providers (so-called "neoclouds") likely to lose their independence. (Sources: Reuters; S&P Global Market Intelligence; Gartner; The Register)
- China posts surprisingly strong GDP, but the consumer remains weak. Key data from the Middle Kingdom was released this morning. According to the national statistics bureau, China's Q3 GDP grew by 4.5% year-on-year (and 1.2% quarter-on-quarter), beating the market consensus of 4.4%. Across the first three quarters, the growth rate stands at 4.6% YoY. However, looking under the hood reveals a distinct fracture in the economy: while September industrial production rose by a solid 5.5% YoY, retail sales recorded a meager rebound of just 1.1%. This means that China's recovery continues to rely on factories and exports, while domestic demand remains heavily subdued. (Sources: National Bureau of Statistics of China; Reuters)
Market Backdrop
- Fed Chair avoids commitments, gold pushes higher. Federal Reserve (Fed) Chair Kevin Warsh stated bluntly during a speech in Bangkok: "I do not prejudge decisions before meetings," thereby avoiding clear forward guidance ahead of the upcoming gathering scheduled for October 27–28. Market pricing indicates that investors currently see roughly a 16% probability of a rate hike this month. In light of the central bank's caution, the US 10-year Treasury yield edged down slightly to around 5.06% (from around 5.09% at the end of last week). Meanwhile, in Asian trade, spot gold was trading at around $4,175 per ounce, with December Comex futures hovering near $4,196. (Sources: Reuters; Associated Press; CNBC; TradingPedia)
- Bank of Japan sees inflation near target. Bank of Japan (BOJ) Governor Kazuo Ueda assessed that underlying inflation in the country is currently very close to the 2% target. Nonetheless, the FX market remained relatively calm—the USD/JPY exchange rate hovered around 158 on Monday. This will be a critical theme ahead of Friday's national CPI inflation release in Japan. (Sources: Reuters)
What to Watch
- 19.10 (14:30) – Canada: CPI Inflation (Monday). Given recent warnings from the Bank of Canada (BoC) governor regarding persistent energy-driven inflation, today's report will be crucial for markets ahead of the upcoming interest rate decision. A few hours later (17:30), the BoC will also release its quarterly Business Outlook Survey.
- 20.10 (03:15) – China: PBoC LPR Rate Decision (Tuesday). Following today's uneven GDP figures, markets will be watching to see if the People's Bank of China decides to adjust benchmark loan prime rates (LPR) to support the weakening consumer.
- 20.10 (08:00) – UK: Labour Market Report (Tuesday). Monthly report on unemployment and wage growth, providing a crucial foundation for upcoming Bank of England decisions. A day later (Wednesday at 08:00), the UK will also publish its full CPI inflation data.
- 22.10 (14:30) – US: Initial Jobless Claims (Thursday). Weekly reading on the health of the US labour market, important for assessing market expectations for Fed interest rate moves.
- 23.10 (01:30) – Japan: CPI Inflation (Friday). Crucial data in light of today's remarks by Governor Ueda. They will shape market expectations ahead of the Bank of Japan's meeting scheduled for October 30.
- 23.10 – Eurozone, UK, US: Flash PMIs (Friday). Wrapping up the week will be a series of October manufacturing and services activity prints for major global economies, offering an initial snapshot of economic momentum in Q4.
Aggregation of selected data for this article, editing of the text and the translations were carried out using artificial intelligence.
