Oil hits a six-month high; Moody's maintains France's rating

Oil hits a six-month high; Moody's maintains France's rating
(Spot market closes are for Friday, 23 October, Eastern Time. US equity futures and European spot markets are closed over the weekend, so there are no new futures or European market quotes in this edition; the next trading session is Monday.)

On Friday, the S&P 500 fell 0.52% to 7623.68, the Dow fell 1.23% to 52215.16 (-652.82 points), the Nasdaq fell 0.21% to 25955.34, and the equal-weight S&P ETF (RSP) fell 0.77% to $216.54 (via secondary reporting). The 10-year US Treasury yield closed at 4.987%, up about 11 basis points; the 2-year yield was 4.68% and the 30-year was 5.314% (WSJ). The December Brent contract settled at $116.72, up 3.1%, while WTI settled at $103.27, up 3.8% (WSJ). Spot gold closed near $3997 an ounce, below the $4000 threshold (Reuters, via secondary reporting); the dollar index closed at 101.81, up about 0.2% (via secondary reporting). For the week, the Dow rose 0.41%, the S&P 500 fell 0.47%, and the Nasdaq fell 0.71% (Reuters, via secondary reporting).

Market themes
There were no new market quotes on Saturday, but two developments after Friday's close set the starting point for sentiment at Monday's open. The first was oil: Trump said at a Florida rally that the US “might do a little ‘Operation Epic Fury’ again,” while Iran warned that if the US and Israel resumed airstrikes, retaliation would target not only military bases but also airports, oil pipelines and civilian targets in the Gulf region (WSJ). The second was France: after Friday's New York close, Moody's maintained France's Aa3 rating and negative outlook. Markets had broadly expected a downgrade, so the absence of one was itself a relief. But Moody's also spoke firmly: maintaining the rating depends on passage of the 2027 deficit-reduction budget and some easing of financing costs and social tensions in the coming months (CNBC, via secondary reporting; Reuters, via secondary reporting). The weekend picture is therefore one of oil prices hanging at high levels, a temporary easing of pressure on French spreads, and US Treasury yields back near 5%. Next week, markets will still trade the same set of questions: whether energy inflation will block the Federal Reserve's path, and whether AI financing bills will continue to weigh on growth stocks. Wednesday's FOMC meeting and results from Microsoft and Alphabet will provide the first answers.

I. Geopolitics and oil: Trump's “Epic Fury again” as Brent reaches its highest close since April

• Trump said at a Florida rally on Friday that the US might conduct another small-scale “Operation Epic Fury,” but gave no details on timing, scale or targets. He also said the US could quickly end the war with Iran (Reuters, via secondary reporting). The Wall Street Journal reported that the US is sending a third carrier strike group and Marines to the Middle East while withdrawing some personnel from bases in the region (WSJ).
• Supply disruptions extend beyond Iran: Yemen's Houthi forces attacked Saudi Arabia's Shaybah oil field and King Fahd International Airport in Dammam this week. The Saudi energy ministry said operations at Shaybah were unaffected, but markets continued to push up the geopolitical risk premium (WSJ). Ole Hansen, head of commodity strategy at Saxo Bank, said the global oil market remains fragile and higher energy prices are pressuring both stocks and bonds because “another inflation shock could limit central banks' room to ease” (Barron's).
• The effect on US consumers is already tangible: the national average gasoline price on Friday was $4.29 per gallon, about 40% higher than a year earlier (WSJ). The US midterm elections are on 3 November, and every jump in oil prices now translates directly into a cost at the ballot box.

II. Bonds, the dollar and commodities: the 10-year yield returns near 5%; gold falls below $4000

• After haven flows poured into US Treasuries on Thursday and the 10-year yield posted its largest one-day drop in more than three years, Friday's oil rebound pushed yields back up: the 10-year closed at 4.987% and the 30-year at 5.314% (WSJ). The Wall Street Journal's weekly review noted that the 10-year ended the week at 4.987%. Thursday's plunge was “a relief” for bond traders, but Friday's focus had shifted to another threat: oil's return to April levels brought inflation concerns back to the fore (WSJ).
• The dollar index rose about 0.2% on Friday to close at 101.81; the euro was at $1.1193 and the dollar at ¥156.87 (via secondary reporting). Spot gold closed near $3997 an ounce on Friday, its first close below $4000 since mid-July, and fell about 4% for the week (Reuters, via secondary reporting). Gold's decline despite the twin shocks of oil prices and geopolitics suggests that real interest rates and liquidity expectations, rather than haven sentiment alone, are currently the dominant variables.
• In France, the 10-year government bond yield remained above 5.05% during European trading on Friday, near a multidecade high. The French-German spread had widened to 175 basis points on Thursday, its highest since late 2011 (WSJ). Moody's decision not to downgrade France eased the worst-case scenario, but the negative outlook remains, meaning the 2027 budget still needs parliamentary approval for the spread to narrow meaningfully.

III. Stocks and sectors, including earnings: energy stands alone; defensive stocks also take a hit

• Energy led gains on Friday, with the S&P 500 energy sector reaching a record high. Chevron rose 2.9% and ConocoPhillips gained 3.6% (Reuters, via secondary reporting). By contrast, consumer staples fell 1.92%, communication services 1.78%, consumer discretionary 1.66%, and financials 1.32% (via secondary reporting).
• American Express fell 3.7% to $313.22: its Q3 earnings beat expectations and it raised full-year guidance, but it announced layoffs of about 5%, and its shares fell despite the results. The Dow is a price-weighted index, so the steep drop in a high-priced stock directly amplified the index's decline (via secondary reporting). Goldman Sachs fell 1.8% and Caterpillar fell 2.4%, indicating that selling had spread from technology to financials and industrials (Reuters, via secondary reporting).
• Technology stocks were relatively stable on Friday. The Wall Street Journal noted that the Nasdaq outperformed the broader market after Thursday's AI-stock selloff cooled, while investors continued to rotate into less volatile stocks. Consumer staples have risen 9.6% this month and are on track for their best monthly performance in 26 years (WSJ). Chip stocks rebounded, with Micron up 2.5% and AMD up 1.7% (Reuters, via secondary reporting).
• European close: the STOXX 600 fell 0.31% to 635.77, the DAX fell 0.75%, the CAC 40 fell 0.36%, and the FTSE 100 fell 0.32%, with the weekly performance the worst since early September (via secondary reporting). European markets were also closed on Saturday. France's “Act Two” protests are underway, and Paris businesses have reinforced shops and adjusted opening hours in advance to guard against a repeat of last week's vandalism (Le Monde).

IV. AI news: the selloff cools, but questions over the financing bill persist

• The Wall Street Journal's weekly review highlighted the central shift in AI trading this week: the market has begun to ask how much more these companies can borrow as AI infrastructure investment becomes increasingly debt-driven and interest rates rise. “If interest rates keep going up, how much can these companies still borrow?” said ClearBridge's Michael Feldman (WSJ). The same review noted that even as technology stocks stabilized on Friday, bond spreads for Oracle, SpaceX and Meta continued to widen, extending the trend of the past two weeks (WSJ).
• This means Thursday's selloff was not a one-off event but a shift in pricing: from “AI revenue can cover everything” to “prove cash flow first, then discuss valuations.” Microsoft and Alphabet's results next week, after Wednesday's close, will be the first test. The market will be looking not at revenue growth itself, but at whether capital expenditure guidance and free cash flow add up.
• There were no major new AI company announcements over the weekend, and this edition has obtained no new information on AI financing or orders. The assessment is based on market consensus after Friday's close.

V. Europe: Moody's gives France a pass, but makes its conditions clear

• After Friday's New York close, Moody's published its periodic review of France, maintaining the Aa3 rating and negative outlook and explicitly stating that this was not a formal rating action (Reuters, via secondary reporting). Most market participants had expected a downgrade to A1. Moody's decision surprised them, and French Prime Minister Lecornu said it “refutes the pessimistic forecasts of many so-called experts” (Le Monde).
• But Moody's warning was equally clear: slower growth and a wider deficit have pushed the debt burden above previous expectations, and the recent sharp rise in French bond yields “has increased the risk of a further deterioration in debt affordability.” A further weakening of legislative capacity to respond, or a prolonged postponement or reversal of structural reforms such as pension reform, could lead to a downgrade (Reuters, via secondary reporting). France's public debt reached 119.0% of GDP in the second quarter of 2026, and Moody's expects it to exceed 120% in 2027 (Reuters, via secondary reporting).
• The transmission to US stocks lies not in France itself but in spreads and the euro: if French spreads widen again, a European sovereign debt storm could once more pressure US stocks through haven flows and the dollar. This was one of the triggers for last Thursday's surge in US Treasuries. At Monday's open, watch first whether France's 10-year yield and the French-German spread fall, and then whether US stocks follow.

VI. Forward calendar (Hong Kong time)

• 24 October (Sat), today: France's “Act Two” protests are underway; US and European stock markets are closed, with no new futures or spot quotes.
• 26 October (Mon): Verizon before the open; Cadence after the close; the Chicago Fed National Activity Index and Dallas Fed Manufacturing Survey in the evening.
• 27 October (Tue): 22:00 Conference Board consumer confidence for October; Coca-Cola, Boeing and UPS before the open; Visa and Robinhood after the close.
• 29 October (Thu), 02:00 a.m.: FOMC decision (markets expect the rate to remain at 3.75–4.00%; no dot plot at this meeting); Microsoft and Alphabet after the close.
• 29 October (Thu): 20:30 preliminary Q3 GDP and September PCE; 21:15 ECB interest-rate decision; Eli Lilly and Mastercard before the open; Amazon and Intel after the close.
• 30 October (Fri): Bank of Japan decision; Exxon Mobil and Chevron before the open.
• 3 November (Tue): US midterm elections; 5 November (Thu): major French trade union strike.