By Jamie McGeever
ORLANDO, Florida, Oct 12 (Reuters) - Oil and fuel prices rose on Monday following weekend attacks on a Saudi airport, which had a varied impact on global stocks. Asia shares mostly fell, Europe shares rose, and Wall Street was mixed. The dollar continued its recent rally and hit an 18-month high, and fixed income trading activity was muted as the US bond market was closed for Columbus Day.
In my column today, I look at how nervousness around AI is growing, even as stocks climb to new
highs. A drip feed of negative news is emerging, and the bar for earnings forecasts is higher than ever. A pullback in stocks at some point is inevitable. But when will it come, and how deep will it be?
Today's Key Reads
• Saudi Arabia faces new missile and drone fire after major attacks on airports
• In the US, a wealth boom and a price shock collide
• US yield surge triggers mortgage hedging, adds to bond market pressure
• IMF says AI investment keeps global growth around 3% but brings massive disruption
• Hall, Woodford win Nobel prize for work on how to stabilise economies
• Today's Key Market Moves STOCKS: South Korea -4%, Europe +0.7%, UK +1%. Wall Street mixed - Nasdaq -0.4%, Dow +0.4%, S&P 500 flat.SECTORS/SHARES: Three sectors on the S&P 500 rise, eight fall. Energy +1.5%, tech -0.9%. Meta +3.4%, Microsoft +1% to 2026 high, Chipotle -3.7%, Starbucks +1.7%.FX: Dollar index highest since April 2025. Dollar/yen 3-week high of 158.70. Indian rupee biggest gainer, on RBI action.BONDS: US bond market closed. French, Italian spreads vs Germany widen.COMMODITIES/METALS: Oil +2% on Riyadh strikes.
Today's Talking Points:
Wot's ... uh, the deal?
If President Donald Trump's surprise deal over the weekend to remove sanctions on Russian diesel and announcement of an energy ceasefire between Russia and Ukraine were intended to help lower US energy prices ahead of the midterm elections, they have not gotten off to a good start. Markets are taking their cue from events in the Middle East, where attacks on Riyadh airport have heightened already-intense security and supply concerns. On Monday crude oil rose 2%, and US diesel futures edged higher too.
In any case, the diesel deal does not look likely to have a lasting impact on prices. The volumes that Trump's Truth Social post said Russia will release over the next three months equate to roughly 12 hours of global diesel consumption. It's barely even a drop in the ocean. Whether it moves the midterms polling dial remains to be seen. If not, and gaspline and diesel prices stay elevated, will Trump find another lever to pull?
King dollar
The dollar's renaissance is remarkable. It is trading against a basket of major currencies at its highest level since April last year, but even more impressive than that, it has risen 4% in the last month. That's a sizeable move in such a short space of time for any major currency, never mind the world's reserve currency.
True, it is coming off a relatively low base. The dollar index was at 4-year low in February. Much of the latest move is due to euro sovereign debt worries slamming the euro. CFTC data shows speculators' "long" dollar positions are quite extended, so perhaps the momentum will begin to cool. That would likely be welcomed in Washington and other capitals around the world.
Mixed impact
The AI revolution's contribution to the US equity bull market is not in doubt, even though worries about its momentum and market concentration are mounting. Corporate profits - nominal and as a share of GDP - have never been higher, Wall Street's major indexes have never been higher, and it's largely thanks to the trillions being spent on AI.
But the impact on US economic growth is much more nuanced. Indeed, from a trade perspective, it's probably negative. The US trade deficit is widening, in large part driven by record demand for chips, computer equipment and other industrial machinery needed for the AI infrastructure buildout. The deficit widened to 3% of GDP in Q2 from 2.7% in Q1, and could reach 4% next year, according to economists. All else equal, that's a pretty heavy drag on growth.
What could move markets tomorrow?
• IMF/World Bank meetings in Bangkok
• Japan wholesale inflation (September)
• China trade (September)
• Germany wholesale inflation (September)
• US Federal Reserve officials speaking include Governor Christopher Waller, Richmond Fed President Thomas Barkin, Boston Fed President Susan Collins
Want to receive Trading Day in your inbox every weekday morning? Sign up for my newsletter here. Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.
(Reporting by Jamie McGeever; Editing by David Gregorio)
