Oil-Driven Inflation Fears Rattle Markets
TREE NEWS reports: Brent crude oil broke above $115 per barrel on Thursday, rising 1.6% intraday and marking a third consecutive weekly gain, as supply disruption risks in the Middle East intensified following an attack in Saudi Arabia. The surge in oil prices is complicating the inflation outlook and weighing on risk assets, with U.S. stocks opening lower: the Dow Jones Industrial Average fell 1%, the S&P 500 dropped 0.45%, and the Nasdaq declined 0.3%.
The move in energy markets comes as investors remain cautious about the trajectory of inflation and monetary policy. The yield on the 10-year U.S. Treasury note, which had plunged 17 basis points on Thursday—its largest single-day drop in over two years—edged back up 2 basis points to 4.97% as safe-haven demand showed signs of fading. Gold continued its retreat, falling toward $4,000 per ounce and heading for its worst weekly performance since June.
Semiconductor Stocks Diverge
Semiconductor shares showed mixed performance. SK Hynix rose about 3% in U.S. premarket trading, while Western Digital fell roughly 3% after reporting its first-quarter earnings. In Asia, the Kospi closed up 0.3% after recovering from an intraday drop of as much as 4.1%, with SK Hynix surging 4.41% and Samsung Electronics gaining 0.46%. Japan’s Nikkei 225 fell 0.34% to close at 62,693.16.
The rotation into safe-haven assets like U.S. Treasuries has been a notable feature of the recent tech-driven volatility. However, the renewed rise in oil prices is now muddying the inflation picture, limiting the scope for a sustained risk-asset rebound. The yen traded around 156.88 per dollar, while the Japanese 10-year yield fell 9 basis points to 2.780%.
AI Spending Debate Intensifies
Amid the market turmoil, the debate over whether AI capital expenditures can generate sufficient returns is dominating sentiment. Wolf von Rotberg of Bank J Safra Sarasin noted that equities are unlikely to stabilize until U.S. hyperscalers can demonstrate that soaring AI revenues justify current buildout levels. He also pointed to growing stress signals in credit markets, where willingness to finance additional capex is diminishing.
Blackstone President Jon Gray offered a contrarian view, stating he does not believe AI is a bubble and describing current AI demand as growing “almost parabolically.” His comments, made during a Bloomberg Television interview discussing Blackstone’s third-quarter results, highlight the divide between skeptics and believers.
Key Takeaways for Investors
- Oil is the wildcard: Sustained prices above $115 could keep inflation elevated, forcing central banks to maintain tighter policy for longer, which would pressure both bonds and equities.
- Treasury volatility persists: The sharp swing in yields—a 17-basis-point drop followed by a modest rebound—signals fragile sentiment and heightened sensitivity to energy prices.
- AI capex scrutiny: Investors are no longer giving tech giants unconditional trust on capital spending. Earnings must increasingly justify the scale of AI investments, and credit markets are showing early signs of strain.
- Watch the dollar and yen: Currency markets may react to shifting rate differentials and safe-haven flows as geopolitical risks linger.
With oil supply risks unresolved and the AI profitability debate ongoing, markets are likely to remain volatile. Investors should monitor energy prices, Treasury yield movements, and corporate guidance on AI spending for clues on the next directional move.
