PremiumHormuz, Hurricanes, Hikes, & Hiccups In AI's Accounting: Trump Puts War On An Election Timer As Junk Quietly Cracks
Oil (and products) kept threatening another inflation shock, bond markets demanded a higher price for financing everybody's ambitions, and AI investors discovered that the definition of revenue matters. Trump's pre-midterm Iran pledge (and a diesel deal with the devil) and a more reassuring OpenAI forecast helped sentiment recover, but neither resolved the underlying problem: governments and technology companies are promising an expensive future that someone still has to fund.
Tl;dr: Oil's headline roulette set the tone again this week, and every other asset spent five days reacting to it (Iran escalated attacks around Hormuz, Houthis hit Saudi airports, Hurricane Isaias shut in 63% of Gulf of America crude, Trump promised no strikes on Iran "prior to the Midterm Elections", then Houthis reportedly mined Bab al-Mandab). That kept the 10-year Treasury pinned near 5.25% after it touched levels last seen in 2002, even as all three auctions cleared and jobless claims printed near multi-decade lows, which left a hawkish set of Fed minutes with little new to add. Away from the US, French bonds stabilized just below last week's euro-crisis wides without repairing any of the damage to the euro, while Brazil delivered the week's most unambiguous risk-on trade after Flávio Bolsonaro beat Lula in the first round. SPX made its 28th record close of the year on Tuesday and then lost its footing on Thursday when an FT report on OpenAI's revenue punched the semis in the mouth and pushed Oracle's CDS to a record, which is where the equity story and the credit story finally met. Investors, for their part, responded by sending $166 billion into money market funds, the most since April 2020.