US Market Wrap: Stocks hit on AI concerns while oil rallies despite Trump pushback on pre-election strikes

SNAPSHOT: Equities mixed, Treasuries up, Crude up, Dollar down, Gold up REAR VIEW: OpenAI’s annualised revenue is reportedly about $20bln less than has been previously signalled; Trump says won't strike Iran before midterms following reporting that pointed towards the admin gearing up for strikes; Trump says had productive discussions with Iran; Average US 30yr bond auction; Fed’s Waller says more rate hikes are likely needed to tame inflation, but hikes do not need to be consecutive; US initial claims little changed; Satellite images show smoke rising from oil and gas facilities in Saudi Arabia; ECB Minutes reveal officials said repricing of yields could impact future stance; ORCL reportedly weighs power workaround at New Mexico data centre; Samsung Electronics prelim Q3 figures miss expectations; TSMC Q3 revenue beats COMING UP: Data: Norwegian CPI (Sep), Canadian Jobs Report (Sep), US University of Michigan Consumer Sentiment Prelim. (Oct). Speakers: ECB's Cipollone, Schnabel; Fed's Collins. Supply: Australia. Earnings: Delta Air Lines. Credit Ratings: S&P on the UK. MARKET WRAP US indices were lower on Thursday, although losses were predominantly driven by technology, with underlying market breadth remaining positive. The Nasdaq fell c. 1.4%, while the equal-weight S&P 500 rose 0.6%, potentially reflecting some rotation out of highly valued technology stocks into other areas of the market. Sectors were mixed, with Energy the clear outperformer alongside Consumer Staples, while Technology lagged, followed by Health Care. Energy benefited from higher crude prices, while Consumer Staples was supported by gains in Coca-Cola (KO) and PepsiCo (PEP) following the latter's earnings report. Memory weakness began overnight following disappointing preliminary Samsung earnings, with operating profit and revenue missing expectations and the stock closing 2.4% lower in Asia. The results weighed on memory-related stocks, with the DRAM ETF falling c. 5%, alongside weakness in Samsung, SK Hynix, Micron and Seagate. AI-related names came under further pressure during US trade after the FT reported that OpenAI's annual revenue was USD 20bln below previous estimates, at USD 50bln versus USD 70bln. The report weighed on Nvidia, Microsoft, AMD, Oracle, Broadcom, Amazon, Nebius and CoreWeave. However, CNBC later clarified that the discrepancy reflected differences in accounting methodology, with OpenAI excluding gross revenue from cloud partners, providing a cleaner measure of revenue. Treasuries rallied amid the equity weakness, with the curve bull flattening as the long end led the move. US data and Fed commentary had little impact, although initial jobless claims remained below 200k, while Fed's Waller echoed Williams and Jefferson in suggesting rate hikes do not have to occur at consecutive meetings, but did note additional rate hikes are likely needed. The 30-year Treasury auction was fairly average after a rally in long-end bonds reduced the concession ahead of the offering, while the subsequent 20-30-year buyback saw the Treasury accept the maximum USD 6bln. Crude rallied following overnight reports that President Trump was considering strikes against Iran before the midterm elections. However, prices settled off their peaks after Trump pushed back on the reports, stating that the US would not strike Iran before the elections and that negotiations with Tehran were productive. In FX, CAD outperformed alongside higher oil prices, while the Dollar weakened as US yields declined. AUD underperformed, while precious metals were mixed, with gold advancing but silver declining. FED WALLER (voter): Further rate hikes are likely needed to bring inflation under control, although the Fed has flexibility over the pace of tightening and increases do not need to occur at consecutive meetings. He warned that inflation remains too high, with strong AI investment and the ongoing energy shock contributing to persistent price pressures. On the economy, Waller noted signs of strengthening activity in H2 2026, while the labour market remained solid and stable in September despite weaker job creation. Regarding policy communication, he argued that the Fed can improve market understanding by signalling potential policy options without committing to explicit forward guidance. MUSALEM (2028 voter, hawk): Inflation is elevated and being driven by persistent demand pressures and supply shocks. The key to bringing inflation back to 2% in a timely manner and limiting second-round effects is more tightening of monetary policy. Musalem said rates ought to be going up in the next six to nine months, and he goes into all meetings with an open mind. Meanwhile, his contacts are mostly worried about inflation and do not see job market worries. He described the economy as pretty strong right now, and the best thing the Fed can do is lower inflation. On yields, he noted nominal yields are rising because real yields are rising in part due to rate expectations; Market inflation expectations remain anchored; AI investment and the government deficit are also pressuring yields higher. Separately, he said financial conditions have tightened modestly but still are accommodative and supporting growth. Lastly, Musalem said credit conditions are solid and good amid some slight issues in the market. DATA JOBLESS CLAIMS: Initial jobless claims (w/e Oct. 3rd) printed 197k, more or less unchanged from the prior 199k, and marginally below the expected 200k, as the economy continues to showcase the low-hire, low-fire labour market. This meant the 4-wk average ticked lower to 198k from 200.5k. For the headline, the unadjusted figure was 170,333, +7.6% W/W, and the seasonal factors had expected an increase of 8.7%. Looking at the breakdown, the biggest increases were California (+4,578), Illinois (+1,154), and New York (+985). Continued claims (w/e Sept. 26th) came in at 1.716mln (exp. 1.710mln, prev. 1.699mln). Overall, jobless claims remain very low, and Oxford Economics adds that underlying job growth is steady and consistent with the labour market’s break-even pace of employment growth, while layoffs are low. FIXED INCOME T-NOTE FUTURES (Z6) SETTLED 7+ TICKS HIGHER AT 104-23 T-notes rally as AI concerns weigh on stocks, while Eurozone yields fall following ECB minutes. At settlement, 2-year -1.9bps at 4.751%, 3-year -3.0bps at 4.885%, 5-year -4.1bps at 4.987%, 7-year -5.1bps at 5.105%, 10-year -5.9bps at 5.227%, 20-year -7.0bps at 5.645%, 30-year -7.2bps at 5.601%. THE DAY: T-notes appeared to benefit from haven demand on Thursday, with the curve bull flattening as the long end led the rally. The move coincided with a risk-off session for technology stocks, despite rising oil prices. Tech came under pressure following disappointing preliminary Samsung earnings, which weighed on the memory sector, while the FT reported during US trade that OpenAI's annual revenue was USD 20bln lower than previously estimated, at USD 50bln versus USD 70bln. The report weighed on broader AI-related names, including NVDA, ORCL, AMD and INTC. However, while technology weakness dragged on the major indices, the decline in yields appeared to support the broader equity market, with market breadth remaining positive. Attention was also on the USD 22bln 30-year Treasury auction. The substantial yield pickup from last month's offering may have helped attract demand, although the rally in long-end Treasuries throughout Thursday reduced some of the concession ahead of the auction, with the high yield of 5.618% well below the roughly 5.773% peak seen earlier in the session. Ultimately, the auction was fairly average, with a marginal 0.1bp tail and weaker indirect participation than the previous offering. Nonetheless, the above-average B/C and relatively low dealer allocation suggested the auction was still reasonably well absorbed. US data saw the latest weekly initial jobless claims remain under 200k yet again, bringing the four-week average also below the round number, suggesting an ongoing, low-hire, low-fire labour market. Fed speak saw Governor Waller echo sentiment from Williams and Jefferson that there is flexibility over the pace of hikes and that they do not need to be consecutive, but he did stress that more hikes are likely needed to tame inflation. Musalem also stressed that more hikes are required to bring inflation back to target, noting rates ought to be going up in the next six to nine months. There may also have been some follow-through from European government bonds, with Eurozone yields declining following the ECB minutes. The minutes noted that higher long-end yields, provided the move remains orderly, support the intended monetary policy stance and could influence the future path of policy rates, suggesting that tighter financial conditions may reduce the need for additional ECB hikes. Meanwhile, Eurogroup President Pierrakakis said he was mindful, but not alarmed, by Eurozone bond spreads, adding that adopting a sound 2027 French budget would be key to calming markets. He also called for fiscal prudence. ECB President Lagarde acknowledged recent market moves, noting that the ECB remains attentive to developments and has tools available to counter unwarranted market dynamics. Supply Notes US sold USD 39bln of 30-year bonds; Tail 0.1bps. Bills US sold 8-week bills at high rate of 3.980%, B/C 2.77x; sold 4-week bills at a high rate of 3.980%, B/C 2.40x US to sell USD 82bln 26-week bills, to sell USD 95bln 13-week bills, and to sell USD 95bln 6-week bills on October 13th; all to settle on October 15th STIRS / OPERATIONS Fed Hike Pricing via CME FedWatch: Oct 4.3bps (prev. 4.9bps), Dec 24.1bps (prev. 25.5bps) EFFR at 3.88% (prev. 3.88%), volumes at USD 108bln (prev. USD 120bln) on October 7th SOFR at 3.88% (prev. 3.90%), volumes at USD 2.968tln (prev. USD 2.997tln) on October 7th NY Fed RRP op demand at 0.34bln (prev. 2.34bln) across 2 counterparties (prev. 15) on October 8th US Treasury Buyback [Liquidity Support, 20-30 year, max USD 6bln]: Accepts USD 6bln of USD 14.89bln offers; Accepts 10 of 34 eligible securities CRUDE WTI (X6) SETTLED USD 3.21 HIGHER AT 91.49/BBL; BRENT (Z6) SETTLED USD 4.08 HIGHER AT USD 104.28/BBL The crude complex was firmer, albeit settling off highs, after Trump's latest Truth pushed back on earlier reports. Benchmarks gained through the European session, and through the US day, amid initial ever-increasing US-Iran escalation risks, with reports that Washington had completed operational plans for potential strikes against Iran ahead of the November midterms, although no final decision had been made. As such, WTI and Brent hit highs of USD 93.20/bbl and 105.92/bbl, respectively, but they swiftly pared a chunk of their gains after US President Trump posted on Truth they are having productive discussions with Iran, and they will not be attacking Iran at any time before the midterms. Aside from these two major updates, for reference, benchmarks saw movement on three separate Middle East headlines, with upside on the first and third, and downside on the second; 1) Iranian supreme leader’s adviser said Strait of Hormuz will not reopen until outstanding issues are resolved; 2) Iranian Foreign Minister Araghchi remarked the negotiation process continues and will respond to the US proposal within days; 3) Houthi spokesperson warned "all employees, including experts, engineers, and workers, at all Saudi oil facilities against being present in areas that are targets for our forces". WTI hit a low of USD 88.77/bbl and Brent 100.76/bbl following the aforementioned Trump Truth, as participants await any further updates or a response from Iran. Axios had later reported that if major US combat operations resume on Iran, they're expected to include large-scale strikes on Iranian energy facilities, infrastructure and nuclear targets. EQUITIES CLOSES: SPX -0.49% at 7,764, NDX -1.39% at 30,726, DJI +0.10% at 51,232, RUT -0.03% at 2,792 SECTORS: Technology -1.78%, Consumer discretionary -0.47%, Health -0.41%, Utilities -0.26%, Communication services flat, Industrials +0.3%, Materials +0.46%, Real estate +0.58%, Financials +0.91%, Consumer staples +2.12%, Energy +2.92%. EUROPEAN CLOSES: Euro Stoxx 50 -0.94% at 6,122, Dax 40 -1.12% at 24,823, FTSE 100 -0.16% at 10,442, CAC 40 -0.51% at 7,730, FTSE MIB -1.35% at 49,298, IBEX 35 -0.87% at 18,952, PSI +0.15% at 9,348, SMI -1.24% at 13,637, AEX +0.31% at 1,121 STOCK SPECIFICS: Oracle (ORCL) reportedly weighs power workaround at New Mexico data centre; could transport gas to site via truck in place of delayed pipeline; the news weighed on Bloom Energy (BE) OpenAI’s annualised revenue is about USD 20bln less than has been previously signalled, FT reports, citing sources. CNBC TV Clarified that the USD 50bln revenue number from OpenAI does not include gross revenue from cloud partners (whereas the USD 70bln included it). TSMC (TSM) Sept. rev. rose 54.6% Y/Y to TWD 511.86bln. WSJ says Broadcom (AVGO) is arranging >$50bln of financing for OpenAI’s custom AI chips. Wolfspeed (WOLF) announces conditional 30yr, $1.5bln loan commitment from US DoD Levi Strauss (LEVI) rev. light w/ weak next Q profit view PepsiCo (PEP) top & bottom line surpassed exp. argenx (ARGX) will discontinue Phase 3 UNITY study of efgartigimod subcutaneous Crescent Energy (CRGY) to buy Devon's (DVN) Eagle Ford assets for $4.22bln in cash Viatris (VTRS) agrees to acquire Pacira Biosciences (PCRX) for $36.5/shr or $1.65bln; PCRX closed Wed. at $25.20/shr Samsung Electronics prelim Q3 op. profit +783% Y/Y & rev. +127% Y/Y, albeit both missed exp. Google (GOOGL) Cloud introduces Gemini agent GlobalFoundries (GFS) signs a five-year silicon interposer manufacturing agreement with TSMC (TSM), volume production expected to ramp up in H1'28. Starbucks (SBUX) has explored a potential takeover of Chipotle (CMG), FT reports; sources say talks may not lead to a transaction given the complexity of combining the two consumer giants. Disney (DIS) pitches Paramount (SKYD) and Universal (CMCSA) on a big-screen to compete with Imax (IMAX). FX USD was marginally weaker as yields pullback pressured the greenback, though risk-off trade across equities on AI concerns limited downside. The declines in yields came from a flight to haven amid risk-off, somewhat dovish ECB Minutes, and US President Trump saying no strikes on Iran will occur before the midterms amid "productive" talks with Iran. Despite Trump, in his comments, rejecting recent reports that the admin was gearing up for strikes on Iran before the midterms, oil prices held onto gains, as details beyond the midterms on resolve were absent. On the flip side, AI concerns arising from an unexpected USD 20bln shortfall in signalled OpenAI annualised revenue kept a floor for the DXY. DXY trades around 102.13 within a 102.033-102.467 intraday range. Fed's Waller offered a hawkish surprise, expecting additional hikes to support the return of inflation to 2% if inflation comes in as expected. He caveated that hikes do not need to be consecutive, but they should occur over an appropriate period of time. CAD, CHF, EUR, GBP, and NZD saw modest strength against the buck; CAD outperformed on higher crude prices, while AUD lagged. For the Euro, ECB Minutes were the highlight, which contained a dovish line. "The repricing at the long end of the yield curve, provided it remained orderly, also supported the intended monetary policy stance and could have implications for appropriate policy rates in the future." This implies the ECB views recent yield moves as having helped its tightening aims, further dampening already declining rate hike expectations. EUR/USD rose back above 1.12 to ~1.1211 while the 10yr OAT-Bund spread fell 1.9bps to 136.1bps.