Stocks and Bonds Rally as Brent Tumbles Below $90: Markets Wrap
(Bloomberg) — A sharp retreat in oil prices triggered a relief rally in stocks and bonds after a lull in hostilities in the Middle East, starting a week packed with earnings and a stack of interest-rate decisions on a positive note.
Nasdaq 100 futures rose 1.4%, while those for the S&P 500 climbed 0.9%. Stocks tied to the global buildout of artificial intelligence, from chipmakers to electrical equipment manufacturers, rallied in premarket trading. Memory chipmaker CXMT Corp. surged as much as 535% in its Shanghai trading debut.
Bond yields slid, with the rate on 10-year Treasuries declining four basis points to 4.64%. The easing came after the US paused a nearly two-week run of strikes against Iran for a third straight night, sending Brent 7.6% lower to $89 a barrel. The dollar fell.
Traders are finding some respite as Brent retreats after surging by more than a third this month, stoking concerns that central banks will need to tighten monetary policy to contain inflation. Questions over whether Big Tech firms’ spending spree on artificial intelligence is sustainable have also fueled a stretch of volatility.
Monday’s rally is doing little to ease caution ahead of the busiest week of the earnings season, when megacaps including Amazon.com Inc., Meta Platforms Inc. and Microsoft Corp. will put AI spending back under the spotlight. Another major event is the Federal Reserve’s rate decision on Wednesday, with markets still pricing around a one-in-three chance of an interest rate hike.
“I expect a volatile week with the Fed, tech results, and a bunch of European inflation data coming out,” said Andrea Gabellone at KBC Securities. “Moreover, the Iran situation is still very fragile. For now, the President said that ‘all options are still open,’ so it will be difficult to put risk back on the table.”
In Europe, the Stoxx 600 rose 0.9%. Luxury stocks rallied ahead of LVMH earnings later on Monday. The Swiss franc led major-currency gains against the dollar.
The likely reaction to this week’s results from AI hyperscalers remains a guessing game for most traders. Pleasing investors has become much harder as capital spending increasingly drains the cash piles of firms that have dominated US stocks gains since the AI boom began.
“There is a complex relationship between earnings releases and markets,” said Daniel Murray, deputy chief investment officer at EFG Asset Management. “If results are good but the response is anemic, that will be informative in terms of the underlying market tone and investor sentiment.”
More broadly, the earnings season has been off to a tear, with more than 86% of the 135 S&P 500 companies that have reported so far beating estimates, according to data compiled by Bloomberg Intelligence. If the trend holds, it will be the highest rate of outperformance since the second quarter of 2021.
US companies that are integrating AI capabilities are poised for stronger profit margins, according to Morgan Stanley strategists. The team led by Michael Wilson expects about 100 basis points of net-margin expansion through 2027 related to AI adoption.
Three days of Group of Seven rate decisions may reveal varying degrees of concern about the prospect of more energy-driven inflation. The Fed will be followed by the Bank of England and Bank of Japan.
Traders will continue to closely track events in the Middle East to gauge the outlook for rates. US President Donald Trump has decided to give diplomacy “some space” in the country’s war against Iran. The Islamic Republic’s army said it has halted its retaliation against US bases and troops in the region.
“Our economists expect a hold at this Fed meeting, and if oil prices ease further, no hike should be needed at all this year,” noted Michiel Tukker at ING Bank. “Having said that, we might not learn much from Fed Chair Kevin Warsh at this meeting given his dislike for forward guidance.”
What Bloomberg Strategists Say
“Today’s move in oil is supportive for both equities and bonds, but the impact is likely to be short-lived. Particularly given it’s difficult to make a sustained case for lower oil prices with no sign of transit through the Strait of Hormuz resuming.”
— Skylar Montgomery Koning, macro strategist. Click here for the analysis.
Corporate Highlights:
AT&T Inc. is raising at least €2 billion ($2.23 billion) of bonds, shattering a traditionally subdued period for Europe’s primary market with a large corporate deal. Nvidia Corp. is in discussions to provide a guarantee of about $250 billion to help OpenAI lease computing from a giant data center project, the Wall Street Journal reported, citing people familiar with the matter. AstraZeneca Plc reported higher-than-expected profit, buoyed by blockbuster cancer medicines, as focus turns to the company’s next generation of oncology drugs. Jack Daniel’s owner Brown-Forman Corp. said its board of directors rejected an unsolicited takeover offer from Sazerac Co., which asked the company to reconsider the $15 billion bid that was rebuffed earlier this year. Some of the main moves in markets:
Stocks
S&P 500 futures rose 0.9% as of 7:51 a.m. New York time Nasdaq 100 futures rose 1.4% Futures on the Dow Jones Industrial Average rose 1.1% The Stoxx Europe 600 rose 0.9% The MSCI World Index rose 0.2% Currencies
The Bloomberg Dollar Spot Index fell 0.1% The euro rose 0.2% to $1.1389 The British pound was little changed at $1.3314 The Japanese yen rose 0.1% to 163.62 per dollar Cryptocurrencies
Bitcoin rose 0.7% to $65,066.06 Ether rose 2.4% to $1,958.07 Bonds
The yield on 10-year Treasuries declined four basis points to 4.64% Germany’s 10-year yield declined four basis points to 3.13% Britain’s 10-year yield declined five basis points to 4.98% Commodities
West Texas Intermediate crude fell 6.8% to $83.22 a barrel Spot gold rose 1.1% to $4,095.57 an ounce This story was produced with the assistance of Bloomberg Automation.
–With assistance from Subrat Patnaik and Sagarika Jaisinghani.
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