Oil prices extended their rally on Friday, with Brent crude trading above $113 a barrel, as geopolitical tensions in the Middle East and soaring shipping costs kept energy markets on edge. The rise adds fresh pressure on inflation just as investors grapple with a sharp sell-off in artificial intelligence stocks and renewed concerns about government debt levels across developed economies.
Brent, the international benchmark, was up 0.5% at $113.73 early Friday, after jumping 4% in the previous session. The US benchmark West Texas Intermediate also climbed 0.6% to $100.08. The gains follow deadly attacks in Saudi Arabia that have heightened fears of a full-scale regional conflict disrupting global energy supplies.
Beyond the risk premium, logistics costs are compounding the problem. According to MarketWatch, the cost of shipping crude from the Middle East Gulf to Asia on a large tanker has surged to over $37 per barrel, more than five times its pre-war level. European natural gas prices are also climbing, with Dutch TTF futures for November trading above €90 per megawatt-hour on Thursday.
AI stocks take a hit
On Wall Street, the S&P 500 fell 1.2% on Thursday, while the tech-heavy Nasdaq composite tumbled 2.6%. The weakness in AI-related shares overshadowed gains elsewhere; a majority of stocks in the S&P 500 actually rose. The Dow Jones Industrial Average managed a marginal gain.
The sell-off reflects growing investor unease about the sustainability of the AI boom, particularly as borrowing costs rise. Building data centres and purchasing advanced chips requires substantial capital, and higher interest rates make that financing more expensive. After a years-long frenzy, many fear that share prices have run ahead of fundamentals, even though companies in the sector continue to report growth.
Meta Platforms, which is pushing its Muse AI agent, saw its shares drop 7% despite reporting stronger-than-expected revenue for the latest quarter; profits fell short of estimates. The company also announced a new class of non-voting shares, a move that provides additional funding flexibility for AI investments without diluting existing shareholders' voting power. Tesla fell 3.1% after its third-quarter profit beat expectations but revenue came in weaker than forecast.
The global tech rout hit Nvidia particularly hard, with the chip giant losing 4.4%. As the largest company on Wall Street by market value, Nvidia's movements carry outsized weight in the S&P 500, making it the biggest drag on the index. CoreWeave, a cloud services provider that has borrowed heavily to buy Nvidia's chips, dropped 10.1% amid concerns about its debt load.
Investors will be watching closely next week when Microsoft, Amazon, and Alphabet report earnings, and the Federal Reserve announces its next interest rate decision on Wednesday, 28 October.
Bond markets find some relief
While AI stocks tumbled, investors sought safety in US government bonds, pushing yields down sharply. The yield on the 10-year Treasury fell to 4.97% from 5.13% late Wednesday, a notable 16-basis-point daily decline. Earlier this month, the yield had climbed above 5.30%, its highest level in decades, driven by concerns about large government debt loads and persistent inflation.
In Europe, France's 10-year government bond yield stood at around 5.07% late Thursday, compared with Germany's 3.34%, a spread of about 173 basis points. Italy's 10-year yield was around 4.61%. Protests across France have increased pressure on the government to boost spending, which could add to its already strained public finances. These developments are part of a broader European market unease as political and economic uncertainties weigh on sentiment.
The drop in US yields came despite a report showing the US economy may be stronger than expected: new applications for unemployment benefits fell by 6,000 to 194,000 last week, the lowest level since July, suggesting layoffs remain low.
Investors will also monitor Friday's preliminary business activity surveys for the eurozone, the UK, and the US for signs of how higher energy prices and borrowing costs are affecting growth. The eurozone inflation has already climbed to 3.8%, driven by surging energy costs, and further increases could complicate the European Central Bank's policy path.
In currency markets, the US dollar rose to 156.93 Japanese yen from 156.77 yen, while the euro was unchanged at $1.1215 and sterling traded at $1.3391. Gold futures fell nearly 1% to $4,020.20 an ounce.
As the week draws to a close, the combination of elevated oil prices, volatile tech stocks, and persistent debt concerns keeps global markets on edge. For European investors, the challenge of managing money in this environment is becoming increasingly complex.
