Nasdaq drops 2.6% on AI concerns, French debt yields top 5% – Morning Market Brief 23 October 2026

The end of the week in the markets is marked by a clear retreat from risk and a flight to safe havens. The primary driver of yesterday's sell-off on Wall Street was the return of concerns over whether massive corporate spending on artificial intelligence (AI) will yield the expected returns, hitting the tech sector. Capital fleeing equities triggered a powerful rally in U.S. Treasuries. At the same time, investors are grappling with persistent geopolitical tensions driving up commodity prices, alongside fresh, troubling data on Europe's economic health.

Geopolitical Environment

• Ongoing tensions in the Middle East continue to dictate terms in the commodities market. We recently reported on the rising security risk premium in the region, a trend further reinforced following reports of attacks attributed to Houthi rebels on Saudi Arabian territory. This fueled concerns over potential supply disruptions. Consequently, on October 22, Brent crude settled at $113.17 per barrel (rising to multi-month highs), while U.S. WTI settled at $99.47. The extent of any potential impact on physical commodity flows remains uncertain, but fear alone is sufficient to keep prices elevated. (Sources: Reuters; CNBC)

Today's Highlights

• Painful reality check for AI optimism hits Wall Street. On October 22, the tech-heavy Nasdaq Composite slid 2.6%, and the broad S&P 500 fell 1.2%. The sell-off was driven by investors reassessing the outlook for artificial intelligence infrastructure spending. Heavy losses were recorded by stocks such as Lam Research (down around 12% following management comments on equipment supply constraints) and Meta, which ended the day down sharply despite earlier reporting revenue growth. (Sources: Reuters; Investopedia; The Olympian)
• Bond market divergence: French troubles and the U.S. safe haven. As a reminder, yesterday we highlighted historic pressure on French government debt. This trend shows no signs of easing—the 10-year French bond yield breached the 5% threshold, and the spread (the risk premium demanded by investors over safer German Bunds) approached 180 basis points (bps). In the U.S., by contrast, a "flight to quality" unfolded—following the tech sell-off, capital flowed heavily into 10-year Treasuries. Their yield fell by 17 bps on Thursday to 4.96% at the close, the largest one-day drop since August 2024. (Sources: Reuters, U.S. Treasury)
• Weakening Europe drags down banking and luxury sectors. The latest Purchasing Managers' Index (PMI) readings have been released. The preliminary French composite PMI dropped to 48.4 in October. A reading below 50 indicates contracting private-sector activity. Meanwhile, its German counterpart fell to 52.8, though it managed to remain in expansion territory (above 50) for the fourth consecutive month. This gloomy macroeconomic backdrop translated into a European sell-off—the Eurozone banking index slid 4.2% on October 22 (its steepest drop since March), led by sharp losses in Bankinter (-7.6%) and Barclays (following weaker results). The luxury sector also felt the squeeze; Hermès sales rose 4.3% (adjusted for currency fluctuations), missing the forecast 5.2% growth. (Sources: Reuters; Sharecast News; Business Times)

Market Background

• U.S. labor market remains resilient. For the week ending October 17, initial jobless claims in the U.S. totaled just 194,000, coming in below the expected 200,000. This signals to the Federal Reserve that the economy remains robust, which may temper the need for aggressive interest rate cuts. (Sources: U.S. Department of Labor; Reuters; Bloomberg)
• Diverging paths for emerging market central banks. The Philippine central bank raised its benchmark interest rate by 50 bps to 5.50% in response to domestic inflationary pressure. Conversely, the Central Bank of Turkey cut its repo rate by 100 bps (to 36%) amid cooling inflation. The Bank of Korea opted for a pause, holding rates at 3.00% following earlier summer hikes. This highlights how the global monetary cycle is currently highly fragmented based on local conditions. (Sources: Reuters; RTE; Daily Sabah)
• Warm autumn hits UK retail. UK retail sales dropped 0.4% month-over-month (m/m) in September, coming in worse than economists' negative expectations. Interestingly, the Office for National Statistics (ONS) noted that online retailers blamed the weaker performance on unusually warm weather, which drastically reduced demand for new autumn and winter clothing. On a quarterly basis, however, sales are still up (+0.7%). (Sources: Office for National Statistics; Reuters)
• SK Hynix halts mega-IPO plans. The South Korean memory chip giant has paused its review of potential pre-IPO funding and a public listing for its subsidiary, Solidigm. Media reports had speculated on a valuation reaching up to $150 billion. The decision was attributed to challenging market conditions, although regulators had also voiced concerns regarding the dual-listing structure. (Sources: SK hynix Newsroom; Yonhap; CNBC)

What to Watch

• 23.10 (10:00 – 15:45) – Eurozone, UK, US: Flash Composite PMIs. Following this morning's data from France and Germany, preliminary readings will roll in throughout the day for the broader Eurozone, the United Kingdom, and the United States. These will reflect the private sector's health heading into the fourth quarter, carrying significant weight for currency valuations (including EUR/USD) and broader growth sentiment.
• 23.10 (16:00) – US: University of Michigan Consumer Sentiment (Final). Market focus will center less on the headline optimism index itself and more on the long-term inflation expectations component.
• 26.10 (10:00) – Germany: Ifo Business Climate Index. Early next week's release will serve as a leading barometer of German business sentiment. In the wake of today's weak French PMIs, markets will be exceptionally attuned to the health of German industry.
• 27.10 (13:30) – US: Durable Goods Orders. Tuesday's report will provide a critical leading indicator for corporate capital expenditures, helping gauge the underlying strength of the U.S. economy amid slowdown fears.

Aggregation of selected data for this article, editing of the text and the translations were carried out using artificial intelligence.