The Opener
Published
Map: The Middle East, marking Najran, Jizan, Medina
Wednesday's hot CPI print had markets bracing for a hawkish repricing, but overnight the trade has flipped toward haven demand as Middle East escalation risk takes over. The five-year Treasury yield, which spiked to 2007 highs on the inflation data, has now reversed to extend a 10 basis point drop, and the 10-year is down 11 basis points to 5.08 percent, both moving on war fear rather than rate expectations.
The catalyst is Iran. CNN reports the US is weighing use of the "mother of all bombs," and sirens and explosions hit Saudi Arabia's Najran and Jazan regions before officials said the danger had passed, with a Saudi-led coalition intercepting a cruise missile near Medina. The VIX is up 3.8 percent premarket, and Elbit Systems is gaining 4.3 percent on the defense bid. Separately, Ukraine struck a Russian refinery overnight in response to what Kyiv called a violation of the US-brokered energy truce, and the Kremlin called the strike routine while noting Russian diesel is starting to reach global markets. Spain is releasing 4.4 million barrels from strategic reserves this month.
The AI infrastructure selloff that dominated Wednesday is deepening. Rocket Lab is down 9.2 percent following its Neutron launch delay to 2027, CoreWeave is off 7.0 percent, SK hynix is down 6.6 percent with the broader iShares MSCI South Korea ETF falling 5.6 percent, and Entegris is down 4.4 percent. Woodward, Marsh & McLennan and Marsh McLennan are all up roughly 3 percent, bucking the weak tape.
Central bankers are pulling in different directions on the inflation shock. ECB's Kazaks says there is no need to rush rate moves despite near-term inflationary pressure, while the Bank of England's Breeden says she is surprised how well the UK economy has absorbed the energy shock. France's September CPI came in at 3.1 percent year over year, above the 3.0 percent expected, and Japan's industrial production fell 2.4 percent month over month in August against a 1.7 percent prior drop, with capacity utilization down 4.2 percent versus an expected gain.
On the corporate side, Apple's chairman confirmed Apple Intelligence has been approved in China, and the FTC has sent civil subpoenas to Anthropic and OpenAI, seeking documents and planning to compel executive testimony. India's trade secretary says a US trade deal is very close.