(Corrected the capitalization in the company name CoreWeave.)
Hot September inflation numbers rekindled market speculation over the near-term path of US monetary policy and triggered a sharp re-pricing across equities, credit and commodities. Futures trading at one stage reflected as much as a 50-50 probability that the Federal Reserve could lift interest rates again in October, and some market participants believe a December rate move of as much as 50 basis points remains possible.
Fed Chair Kevin Warsh is scheduled to address these issues when he speaks early tomorrow at the IMF meeting in Bangkok, a speaking engagement that traders and strategists say will be watched closely for guidance on the Fed s reaction function. In the meantime, markets are reacting to the headline data and the resulting change in expectations.
AI-linked names at the epicenter
The inflation surprise served as a catalyst for another wave of selling in AI-related stocks this week. The correction has been particularly acute among the most leveraged companies tied to the AI investment theme, with both debt and equity in data center builder CoreWeave and cloud software giant Oracle hit hard.
Chipmakers and broader technology names slid on the news, contributing to a drop in the S&P 500 of more than 1% on the day. Market data shown during the session included US500 -1.11%, JP225 -4.9%, ORCL -8.83%, LCO -1.17%, US10YT=X -1.87%, KS11 -7.57%, XBR/USD -1.17%, and CRWV -15.46%.
Across the Atlantic and in Asia, the contagion continued. South Korea s Kospi plunged more than 7% while Japan s Nikkei declined roughly 5%, extending the selloff that began in US trading.
Credit strains intensify
Investors seeking to hedge exposure to the AI complex pushed credit protection costs sharply higher. CoreWeave s credit default swap (CDS) spread topped 600 basis points on Wednesday and surged above 1,000 basis points early today, a dramatic move that underscores investor concern over the most indebted players tied to the AI investment frenzy.
Equity moves tracked that stress: CoreWeave s stock fell about 15% and Oracle s shares dropped roughly 10% on Wednesday, even as their CDS rates blew out to levels that signaled substantial risk premia for bondholders and lenders.
Safe-haven flows, bank earnings and energy
Treasury yields initially spiked on the inflation prints and the renewed prospect of an October rate increase, but then retreated sharply as the AI-complex selloff intensified. Market commentators described the subsequent move as a "flight to safety" amid fears of a broad equity correction.
Large US banks extended a run of weaker performance, with another down day as several firms logged disappointing earnings this week, adding to the pressure on markets already unnerved by the inflation update and tech pullback.
Energy markets provided little respite. Brent crude eased slightly early on Thursday and was trading around $104 a barrel, after reports that the Trump administration is considering easing sanctions on so-called "shadow fleet" vessels that transported oil and refined products from countries including Russia, Iran and Venezuela.
Geopolitical frictions add to volatility
The geopolitical environment remains tense, compounding market unease. Ukrainian President Volodymyr Zelenskiy accused what he perceives as President Trump s favoritism toward Russia and used the term "betrayal" to characterize his view. Ukrainian officials also said they had not received US early-warning alerts in recent days of incoming Russian ballistic missiles and reported that the military version of Elon Musk s Starlink satellite communications service had been slowed across the country.
As a result of those disruptions, Ukraine resumed strikes on Russian refineries, an action that market observers say probably undermines any expectation that a pending US sanctions waiver on Russian diesel exports would quickly reduce fuel prices before next month s US elections. European Union leaders meeting in Brussels are set to consider their response to the unfolding situation.
Elsewhere in the broader region, hostilities continue. A container ship was sunk by a mine in the Strait of Hormuz on Wednesday, and Yemen s Iran-aligned Houthis struck the headquarters of Saudi Aramco, keeping energy supply concerns and risk premiums elevated.
Chart of the day
In the past 24 hours tech shares have slumped as a triple shock hit the sector: disappointment about AI firms revenue growth, renewed Federal Reserve rate rise jitters after the hot inflation update, and midterm election-related speculation. Together these forces targeted the most indebted AI-linked companies, causing investors to look to credit markets to hedge downside risk.
Events and data to watch
- US releases: September producer prices and retail sales; August business inventories; weekly jobless claims; October business surveys from the Philadelphia and New York Federal Reserve Banks.
- Speeches: Cleveland Fed President Beth Hammack and Chicago Fed chief Austan Goolsbee are scheduled to speak.
- International: European Union leaders convene in Brussels.
- Corporate earnings: Bank of New York Mellon, PNC, Charles Schwab, Prologis, US Bancorp, Marsh & McLennan are on the calendar.
Market participants will be parsing these data points, central bank commentary and geopolitical developments for further signals on risk appetite, rate expectations and commodity price direction.
Opinions expressed are those of the author.