Stocks hit as AI growth concerns weigh on sentiment - Newsquawk US Market Wrap

• SNAPSHOT: Equities down, Treasuries steepen, Crude up, Dollar down, Gold flat
• REAR VIEW: Yemeni missile reportedly hits Saudi's Yanbu port, speculation emerges it may have damaged infrastructure or the East-West pipeline; US lawmakers introduce bill to block US President Trump’s Russia diesel deal; Fed Chair Warsh refrains from giving forward guidance, affirms price stability mandate; US President Trump says may have to strike Pickaxe Mountain; Investors reportedly dial back Anthropic valuation expectations.
• COMING UP: Data: Chinese Activity Data (Sep/Q3), Canadian CPI (Sep). Speakers: ECB's Lane, Elderson. Earnings: Cleveland-Cliffs.
• WEEK IN FOCUS: Highlights include UK, Japan and Canada inflation, China Activity Data and Global Flash PMIs. Click here for the full report.
• WEEKLY US EARNINGS ESTIMATES: Earnings pick up with META, TSLA, SPCX, LRCX, and NFLX the highlights. Click here for the full report.

More Newsquawk in 3 steps:
1. Subscribe to the free premarket movers reports.
2. Trial Newsquawk’s premium real-time live audio squawk for 7 days.
3. Check out Newsquawk's US Midterm Election dashboard.   

MARKET WRAP

Equities were sold across the board on Friday, with the Nasdaq underperforming as the rout in technology, AI, chip and memory stocks continued. Reports that Anthropic's valuation expectations had been lowered to USD 1.5tln from USD 2tln added to concerns over elevated valuations across the AI sector.

Elsewhere, geopolitical tensions remained elevated amid ongoing strikes between Saudi Arabia and the Houthis, with Saudi Arabia's East-West pipeline reportedly targeted. Meanwhile, US lawmakers introduced legislation to block President Trump's agreement on Russian diesel exports, while Russia's Ryazan oil refinery reportedly halted operations at one of its primary units following the October 15th drone attack. The developments helped keep crude prices supported, with WTI (Nov) settling above USD 100/bbl, while Brent (Dec) briefly reaching USD 110/bbl, its highest level since May.

Fixed income saw choppy trade amid competing influences from higher oil prices and the technology-led equity sell-off. Meanwhile, Fed Chair Warsh's overnight remarks helped reinforce expectations for an October pause, with some analysts interpreting his usual reluctance to provide forward guidance as an indication that he was comfortable with current market pricing despite the recent hotter-than-expected inflation reports. As a reminder, Warsh's August Jackson Hole speech had helped prepare markets for the Fed's September rate hike.

The Dollar weakened despite the rise in longer-dated Treasury yields, as traders pared expectations for an October Fed rate hike to around 17% from 29% before Warsh's remarks. Despite the broader risk-off tone, the antipodean currencies and GBP outperformed, while JPY lagged, potentially reflecting concerns over the implications of the AI sell-off for US growth expectations.

Gold was little changed on Friday, while silver saw modest weakness and Bitcoin declined.

Elsewhere, US economic data delivered another set of elevated inflation readings, with Import and Export Prices accelerating, while Industrial Production exceeded expectations and outpaced Manufacturing Production.

US

US IP: Industrial Production rose 0.7% M/M in September, above the expected 0.4% and accelerating from the prior 0.1%, while the Y/Y rate increased to 2.2% from 1.4%. Manufacturing Production rose 0.3% M/M, in line with expectations and rebounding from the prior 0.2% decline, while annual growth accelerated to 1.1% from 0.9%. Meanwhile, Capacity Utilisation increased to 76.9% (exp. 76.5%, prev. 76.4%), although it remained below its long-run average. Overall, the report pointed to a strengthening in industrial activity in September, with headline production growth outpacing manufacturing. All major market groups posted gains except business equipment, which was unchanged. Consumer goods output rose 0.7%, as an increase in nondurable goods more than offset a decline in durable goods, while defence and space equipment output rose 0.4%. Elsewhere, construction supplies increased 1.0%, business supplies rose 0.9% and materials output advanced 0.7%, supported by both energy and non-energy components. ING noted that US manufacturing continues to perform strongly, led by advanced technology, pharmaceuticals, chemicals and energy, although more commoditised production remains under pressure given the difficulty of justifying a premium for US-made goods.

US IMPORT/EXPORT PRICES (SEPT): US Import Prices rose 1.1% M/M in September (exp. +0.8%, prev. +0.5%), with the annual rate accelerating to 8.1% from 6.7%, marking the largest Y/Y increase since July 2022. The monthly rise was driven by both fuel and nonfuel imports, with fuel prices increasing 4.8%, supported by higher petroleum (+4.6%) and natural gas (+1.6%) prices. Nonfuel import prices rose 0.7%, driven by capital goods (+0.9%), nonfuel industrial supplies and materials (+1.4%) and consumer goods excluding automobiles (+0.4%). Meanwhile, Export Prices surged 2.2% M/M (exp. +1.0%, prev. +1.2%), with the annual rate accelerating to 11.6% from 8.6%, also marking the largest increase since July 2022. The monthly rise was driven by higher agricultural export prices (+2.6%), particularly soybeans, corn and wheat, alongside a 2.1% increase in nonagricultural export prices, supported by industrial supplies and materials (+4.0%). Overall, the report added to this week's inflation concerns following the hotter-than-expected CPI and PPI releases, potentially posing further upside risks to the September PCE report due October 29th. However, with Fed Chair Warsh maintaining his preference against explicit forward guidance in his overnight remarks, markets continue to price an October hold despite the recent inflation surprises.

FIXED INCOME

T-NOTE FUTURES (Z6) SETTLED 2+ TICKS LOWER AT 105-14+

T-notes steepen as Warsh avoids forward guidance, while AI weakness and higher oil prices drive choppy trade. At settlement, 2-year -1.1bps at 4.746%, 3-year -0.2bps at 4.839%, 5-year +1.3bps at 4.908%, 7-year +2.2bps at 5.001%, 10-year +2.3bps at 5.102%, 20-year +2.3bps at 5.492%, 30-year +2.1bps at 5.441%.

THE DAY: The Treasury yield curve steepened on Friday, with front-end yields edging lower while longer-dated yields rose amid a choppy session driven by several competing factors. The steepening was potentially supported by Fed Chair Warsh's overnight remarks, in which he maintained his preference against providing explicit forward guidance, prompting a dovish response in money market pricing. The implied probability of an October rate hike fell to around 17%, compared with approximately 50% immediately following Wednesday's CPI report. Markets appeared to interpret Warsh's lack of pushback against current pricing and recent Fed commentary as reinforcing expectations for an October pause, although he offered no explicit signal regarding the upcoming decision.

Offsetting the dovish shift in rate expectations was a rally in crude prices, with Brent briefly reaching USD 110/bbl amid ongoing geopolitical tensions. Reports that Saudi Arabia's East-West pipeline had once again been targeted raised further concerns over global oil supply.

T-notes found some support during the late US morning following the equity opening bell, seemingly benefiting from haven demand as the technology and AI stock rout continued. However, as crude prices rallied, T-note futures retreated from their session highs, ultimately settling towards the lower end of the day's range.

Elsewhere, US Import and Export Prices were hotter than expected, adding to a series of elevated inflation readings this week. Industrial Production also exceeded forecasts, with headline output growth outpacing Manufacturing Production. Meanwhile, the Treasury's Primary Dealer Survey asked, "What future changes to auction sizes should Treasury consider, given expected borrowing needs and investor demand?" and "What, if any, additional changes should Treasury consider to enhance the effectiveness of the buyback program?" There had been some speculation that Treasury could seek feedback on eliminating the 20-year bond altogether, although the survey did not explicitly address the future of the 20-year tenor or potential changes to long-end issuance, beyond its broader questions on auction sizes and buybacks.

Supply

Notes

• US Treasury to sell USD 13bln of 20-year bonds on Oct 21st, to settle Oct 23rd; To sell USD 26bln of 5-year TIPS on Oct 22nd, to settle October 30th

Bills

• US to sell USD 95bln of 13-week bills and USD 82bln of 26-week bills on Oct 19th.
• US to sell USD 95bln of 6-week bills on Oct 20th

STIRS / OPERATIONS

• Fed Hike Pricing via CME FedWatch: Oct 4.3bps (prev. 7.3bps), Dec 26bps (prev. 28.7bps)
• EFFR at 3.88% (prev. 3.88%), volumes at USD 118bln (prev. USD 111bln) on October 15th
• SOFR at 3.89% (prev. 3.88%), volumes at USD 3.025tln (prev. USD 2.974tln) on October 15th
• NY Fed RRP op demand at 1.20bln (prev. 0.20bln) across 4 counterparties (prev. 2) on October 15th

CRUDE

WTI (X6) SETTLED USD 3.44 HIGHER AT USD 101.41/BBL; BRENT (Z6) SETTLED USD 3.94 HIGHER AT USD 109.86/BBL

Crude prices were sent higher as speculation grew over potential strikes on Saudi Arabia's East-West pipeline. Iranian media reported that the East-West oil pipeline of Saudi Arabia had been targeted, noting detection of a new thermal anomaly in the Yanbu area, near the oil pipeline, though no other confirmation was seen. Additionally, US lawmakers introduced a bill to block US President Trump’s Russia diesel deal, describing the deal as illegal, and urged Trump to use the sanctions in the Lindsey O. Graham Sanctioning Russia and Iran Act against Russia and China instead. Separately, Russia’s Ryazan oil refinery halted operations of one of its primary units since the October 15th drone attack, according to Reuters, citing sources. WTI and Brent hit highs of USD 101.75/bbl and USD 110.00/bbl, (highest since May 20th), respectively. Short-lived downside in the US afternoon was in response to an Iranian Foreign Ministry Spokesperson saying Iran is ready to help peacefully resolve issues between Saudi Arabia and Yemen; has always been ready to use its best efforts to help resolve the conflict. Later, the Iranian Deputy Foreign Ministry said Saudi Arabia is yet to respond to Iran’s mediation efforts on Yemen.

Weekly Baker Hughes Rig Count: Total unch at 603, Oil -3 at 459, Nat gas +1 at 133.

EQUITIES

CLOSES: SPX -1.10% at 7,659, NDX -2.50% at 29,188, DJI -0.34% at 52,002, RUT -1.63% at 2,722

SECTORS: Technology -2.54%, Communication services -2.45%, Consumer discretionary -1.17%, Health -0.26%, Industrials flat, Real estate +0.38%, Financials +0.49%, Materials +0.68%, Consumer staples +1.31%, Utilities +1.4%, Energy +2.47%.

EUROPEAN CLOSES: Euro Stoxx 50 +0.57% at 6,204, Dax 40 +0.94% at 25,622, FTSE 100 +0.38% at 10,882, CAC 40 +0.28% at 7,957, FTSE MIB +0.93% at 49,857, IBEX 35 +0.82% at 19,336, PSI +1.01% at 9,468, SMI +0.34% at 14,399, AEX +0.91% at 1,143

STOCK SPECIFICS

• Tesla (TSLA): Revealed its Roadster can accelerate from 0-60mph in under one second and use thrusters to land after a ramp jump, with production set for 2028.
• Netflix (NFLX): Chief content officer to leave.
• Varonis Systems (VRNS): To be acquired by Proofpoint for USD 49.75/shr.
• Alcoa (AA): Earnings beat expectations.
• Travelers Companies (TRV): Earnings beat expectations, although Personal Insurance declined, with net premiums written above expectations.
• Strategy (MSTR): MSCI's new rules could reportedly see Strategy removed from its indexes.
• Workday (WDAY): Downgraded at KeyBanc to 'Sector Weight' from 'Overweight'.
• EchoStar (ECHO): Upgraded at JPMorgan to 'Overweight' from 'Underweight'.
• US FAA is set to approve certification for the Boeing (BA) 737 MAX 10, sources report; potentially as soon as next week.

FX

The dollar was weaker against peers as AI concerns continued to dominate FX price action. Concerns over AI debt and associated rising yields persisted with relief short-lived as SPX equity expected volatility hit levels last seen in June. Despite the rise in oil prices on speculation over the Saudi East-West pipeline being targeted again, US 2yr yields traded lower, offering the buck no relief on a short-term rate differential basis, weighed by Fed Chair Warsh's lack of forward guidance or mention of market pricing heading into the October meeting. Meanwhile, US yields on the longer end were firmer as the flight-to-quality rally ran out of steam. US data had a muted impact on price action, though hotter-than-expected import and export prices in September highlighted the challenging inflationary environment the Fed faces. DXY hit lows of 101.576, later bouncing to 101.80.

JPY lagged in the mixed US yield environment and as Japanese stocks were dragged lower alongside US underperformance. Slight JPY strength was seen on remarks from BoJ Governor Ueda that he has been watching the weak JPY and the Middle East in terms of inflation and that the BoJ will continue to adjust accommodation.

NZD, GBP, and AUD were the best performers on Friday with international equities largely outperforming the US given their lesser exposure to AI concerns.