Trading Day: Oil slump no cure for AI angst

ORLANDO, Florida, Nov 2 : Oil prices tumbled on Monday on hopes that US-Iran peace talks could soon take place, which pushed bond yields around the world lower. Stock markets in Asia and Europe mostly benefited as a result, but the momentum evaporated in US hours, as investors turned their attention to Tuesday's midterm elections.

In my column today, I look at the impact an AI-driven stock market rout could have on economic growth. It would vary from country to country, of course, but negative wealth effects and lower AI capex could stir recession fears across the developed world.

Today's Key Reads

• Investors gaming out Congress control for spending, AI outlook

• Sectors bracing for a pivot as US midterm elections loom

• US Treasury auction changes loom in 2027; dealers eye long-end cuts

• New cyberattack on supermarket fridges sweeps across Europe

• Manufacturing solid but strain of energy costs, supply disruptions starts to show

• Today's Key Market Moves STOCKS: South Korea +2 per cent, Japan -0.3 per cent. Europe +0.4 per cent, UK +0.3 per cent. Brazil -0.8 per cent, down every trading day since October 26 election. Nasdaq -1 per cent, S&P 500 -0.5 per cent, Dow +0.4 per cent.SECTORS/SHARES: Seven sectors on the S&P 500 rise, four fall. Consumer cyclicals +2 per cent, tech -2.7 per cent, energy -4 per cent. Apple trade choppy after results, Palantir +3 per cent. Alphabet slips again. Marvell -13 per cent, Lumentum -19 per cent after deal.FX: Dollar slips. Norwegian crown biggest G10 FX decliner, slumps more than 1 per cent. Swiss franc biggest G10 climber, +1 per cent. Chilean peso up nearly 2 per cent.BONDS: UK gilt yields -10 bps. US yields -4 bps at long end, curve flattens for the first day in four.COMMODITIES/METALS: Oil -8 per cent, Brent's biggest fall since April. WTI's since July. Gold +2 per cent, still below $4,000.

Today's Talking Points:

Oil, election, & bluff?

Crude oil prices had their biggest one-day fall in months on Monday, as hope spread that Iran may be more open to negotiations with the US to end the war. This comes on the eve of the US midterm elections, in which President Donald Trump's Republican Party is expected to fare badly, in large part because of the unpopularity of the war and the high energy prices it has caused.

Could this wave of peace talk optimism finally be the one that is backed up with actual progress? Trump has previously signaled new attacks on Iran could follow the midterms, and he may face additional pressure from Israel to stay on the offensive. But on Monday he appeared to soften his stance, and said a deal "could happen". Things might become a little clearer after Tuesday's elections. At least, that's the hope.

Cyber pass

The AI trade has faltered recently mainly due to growing worries that companies are borrowing too much to fund a capex binge that might simply be too big. AI's potential existential threats to humanity have sparked intense debate, but these are risks that are almost impossible to price into asset values. In the same vein, cybersecurity risks are also difficult to quantify, but if AI increases the potential for cyberattacks, investors will have to prepare accordingly.

And soon. Hackers stole more than $6 billion last week from Binance, the world's largest crypto exchange, prompting the exchange's customers to withdraw nearly $5 billion. The theft, potentially the largest-ever financial heist, underlines the vulnerability of digital assets to attacks. But it's not just crypto that's vulnerable. Hackers attacked fridges and freezers in supermarkets across Europe on Monday, forcing stores to throw away food in an incident that echoed a similar attack in France last month. Is AI a help or hindrance in the battle for cybersecurity?

Central bank fest, part II

After the Fed, ECB and BOJ last week, investors have another heavy dose of central bank policy decisions and guidance to absorb this week. The Reserve Bank of Australia kicks it off on Tuesday with an expected rate hike to 4.85 per cent, which would be its fifth this year. Decisions from Sweden, Poland, Brazil, Norway, the UK and Mexico follow.

If there is a unifying theme, it is inflation, although price pressures aren't uniform. And nor is policymakers' reaction function — the RBA and Norges Bank have been hiking rates this year, while the BoE hasn't started yet. In Brazil, policymakers suddenly have to face a very different financial market environment following last month's presidential election. Watch out for some punchy FX moves this week, especially in the Brazilian real.

What could move markets tomorrow?

• Australia interest rate decision

• Hong Kong GDP (Q3, advance)

• South Korea inflation (October)

• US durable goods (September)

• Corporate earnings, including Advanced Micro Devices, Arista Networks, Shopify

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