High oil prices set backdrop for Fed and earnings week

High oil prices set backdrop for Fed and earnings week
(Cash market closing figures are for Friday, 23 October, US Eastern Time. US stock futures and European cash markets are closed over the weekend, so this edition has no new futures or cash quotations; the next trading session is Monday. The update on protests in France covers all of Saturday, through Saturday evening.)

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 (The Wall Street Journal). 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 yield was 5.314% (The Wall Street Journal). The December Brent contract closed at $116.72, up 3.1%, while WTI closed at $103.27, up 3.8% (The Wall Street Journal). Spot gold closed near $3997 an ounce, below the $4000 threshold (Reuters, as reported by another outlet); the dollar index closed at 101.81, up about 0.2% (as reported by another outlet). For the week, the Dow rose 0.41%, the S&P 500 fell 0.47%, and the Nasdaq fell 0.71% (Reuters, as reported by another outlet).

Market themes
There were no new quotations over the weekend, but half of the starting point for Monday’s opening sentiment was already set on Saturday: France’s “second act” did not repeat last week’s vandalism. Reuters reported on Saturday that, after 70 thousand police and gendarmes took to the streets, 10 thousand more than the previous week, a march of 110 thousand people in Paris was largely peaceful. Official nationwide figures put participation at 410 thousand, while unions said it was about twice that; although there were isolated clashes near the end of the march and in places including Marseille, they were far smaller in scale than on 17 October (Reuters, as reported by another outlet). For markets, this means that after Moody’s decided against a downgrade, the worst potential trigger for French spreads—streets spiralling out of control—has not been pulled for now. On Monday, the first test is whether France’s 10-year yield and the Franco-German spread retreat from above 5% and around 175 basis points, respectively. The other half remains unresolved: Brent closed at its highest since April, oil and the 10-year yield are both at key levels, and next Wednesday brings the FOMC decision first, followed by Microsoft and Alphabet earnings. Reuters characterised the week as “hyperscalers on the hot seat,” with about a third of S&P 500 companies due to report (Reuters). At Monday’s open, markets will still be trading the same questions: will energy inflation close off the Fed’s options, and will the AI financing bill continue to weigh on growth stocks?

I. France’s “second act” ends: 410 thousand take to the streets, Paris largely peaceful, late clashes far smaller than last week

• Reuters reported on Saturday that France’s interior ministry counted 410 thousand protesters nationwide, while unions said the figure was about twice as high. Paris police counted 110 thousand marchers; the demonstration was largely peaceful, with protesters denouncing rising living costs and widening inequality (Reuters, as reported by another outlet). Authorities deployed 70 thousand police and gendarmes, 10 thousand more than a week earlier, after acknowledging that they had underestimated the scale of the unrest the previous week (Reuters, as reported by another outlet).
• Clashes were concentrated near the end of the march and outside Paris: as the Paris march ended, police used tear gas and water cannon to disperse small groups of masked youths. Clashes also broke out in Lyon, Bordeaux and Grenoble, while police fired tear gas in Clermont-Ferrand, Lille and Nice. In Marseille, youths dragged metal sheets into roads, burned rubbish bins and threw stones and bottles at riot police; the confrontation continued into the evening (Reuters, as reported by another outlet). Reuters judged that the large security deployment “appeared to have prevented a repeat of last weekend’s unrest,” although isolated clashes still occurred in several cities (Reuters, as reported by another outlet).
• Interior Minister Nuñez said earlier on Saturday afternoon that 135 people had been arrested nationwide, mostly after preventive searches found fireworks, steel balls and other items that could be used as weapons. This edition has not obtained final Saturday evening arrest and injury figures verified by a compliant source (Reuters, as reported by another outlet). The transmission to US equities lies in spreads rather than France itself: if French government bond yields fall on Monday, safe-haven flows linked to the European sovereign debt storm can ease for now; if spreads widen again, the trigger for last Thursday’s surge in US Treasuries will still be present.
• The Moody’s backdrop remains: after Friday’s New York close, Moody’s maintained France’s Aa3 rating and negative outlook, conditional on passage of the 2027 deficit-reduction budget. France’s public debt had reached 119.0% of GDP in the second quarter of 2026, and Moody’s expects it to exceed 120% in 2027 (Reuters, as reported by another outlet).

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

• Friday’s oil rebound reversed half of Thursday’s safe-haven move: the 10-year yield closed at 4.987% and the 30-year at 5.314%. The Wall Street Journal noted that investors continued to move into less volatile stocks; consumer staples have risen 9.6% this month and are on track for their best monthly performance in 26 years (The Wall Street Journal). There were no new Treasury or dollar quotations over the weekend, and this edition has not obtained futures quotations ahead of Monday’s open.
• The effect of oil prices has reached petrol stations: the US average gasoline price on Friday was $4.29 a gallon, about 40% higher than a year earlier, with the US midterm elections due on 3 November (The Wall Street Journal). Brent rose about 6% for the week and WTI about 2%; the energy sector reached a record high on Friday and led the S&P 500 (Reuters, as reported by another outlet).
• Ole Hansen, head of commodity strategy at Saxo Bank, previously said the global oil market remained fragile and higher energy prices were putting pressure on both stocks and bonds because “another inflation shock could limit central banks’ room to ease” (Barron's). This is the hardest trade-off ahead of Monday’s open: if oil prices do not fall, the 10-year yield will struggle to fall; if the 10-year yield does not fall, growth-stock valuations will struggle to stabilise.

III. Individual stocks and sector moves, including earnings: energy stands alone, telecom stocks remain Friday’s sore spot

• The energy sector led gains and hit a record high on Friday, with Chevron up 2.9% and ConocoPhillips up 3.6%. In contrast, consumer staples fell 1.92%, communication services fell 1.78%, consumer discretionary fell 1.66%, and financials fell 1.32% (Reuters, as reported by another outlet). American Express fell 3.7% to $313.22: Q3 earnings beat expectations and the company raised its full-year guidance, but it announced layoffs of about 5%, and its shares fell rather than rose. The Dow is a price-weighted index, so a sharp drop in a high-priced stock directly magnified its decline (as reported by another outlet).
• Telecom stocks illustrate this week’s structural shift: after news that SpaceX was seeking access to about 80 thousand cell sites and could become the fourth nationwide US wireless operator, AT&T and T-Mobile each fell nearly 8% on Friday, Verizon fell 1.2%, tower operator Crown Castle rose 9%, and American Tower rose 4% (Reuters, as reported by another outlet). Verizon reports first, before Monday’s open; whether telecom shares can stabilise before the results is the first question at the open.
• Technology stocks found relative stability on Friday: the Nasdaq outperformed the broader market, chip stocks rebounded after their decline, Micron rose 2.5%, and AMD rose 1.7% (Reuters, as reported by another outlet). Barron’s weekly review characterised Friday as “the AI selloff cooled, but the rest of the market paid the price”: the Dow fell 653 points, the S&P fell 0.5%, and the Nasdaq fell only 0.2%, a reversal of Thursday’s rotation, while high oil prices “didn’t help” (Barron's).

IV. AI news: next week puts “hyperscalers on the hot seat”; whether cloud revenue can cover the bill is key

• Reuters titled its preview of next week “Hyperscalers on the hot seat”: about a third of S&P 500 companies report next week, including Alphabet and Microsoft on Wednesday and Amazon on Thursday. The market is focused on capital spending guidance and returns on AI investment rather than revenue growth alone (Reuters). Hyperscalers’ capital spending is expected to total about $800 billion this year, boosting profits across the AI buildout chain, but rising financing costs have made the market question whether such spending is sustainable (Reuters).
• Nick Giorgi, chief equity strategist at Alpine Macro, says the market “no longer unconditionally believes companies that spend heavily.” That is healthy in itself, but it still means short-term pain (Reuters). King Lip, chief strategist at BakerAvenue, says earnings will determine whether the tech pullback is a buying opportunity or the start of a deeper correction: “All we need is another round of really strong earnings” (Reuters).
• Fundamentals are not weak: among the more than 100 companies that have reported, S&P 500 third-quarter earnings grew more than 32% year on year, according to LSEG IBES data cited by Reuters (Reuters, as reported by another outlet). The question has never been earnings themselves, but “the scale of debt and equity issuance needed to finance data-center construction.” Citi’s Scott Chronert wrote in Barron’s weekly review that sentiment could stabilise if cloud revenue growth builds on the strong second-quarter figures; he maintained his year-end S&P 500 target of 8100 (Barron's).
• There were no new major AI company announcements over the weekend, and this edition has not obtained news of new AI financing or orders. The related assessments are based on market consensus after Friday’s close.

V. Calendar ahead (Hong Kong time)

• 25 October (Sunday), today: Europe ends daylight saving time and clocks go back 1 hour; thereafter, European trading sessions will start 1 hour later in Hong Kong time. US and European stock markets are closed.
• 26 October (Monday): Verizon before the open; Cadence after the close; Chicago Fed National Activity Index and Dallas Fed Manufacturing Survey in the evening.
• 27 October (Tuesday): 22:00 Conference Board consumer confidence for October; Coca-Cola, Boeing and UPS before the open; Visa and Robinhood after the close.
• 29 October (Thursday), 02:00: FOMC decision (the market expects rates to remain at 3.75–4.00%; there is no dot plot this round; futures price the probability of a rate hike this week at less than 10% and the probability of a hike in December at about 80% (Reuters)); Microsoft and Alphabet report after the market close early the same morning, following Wednesday’s close in US Eastern Time.
• 29 October (Thursday): 20:30 Q3 preliminary GDP and September PCE; 21:15 ECB rate decision; Eli Lilly and Mastercard before the open; Amazon and Intel after the close.
• 30 October (Friday): Bank of Japan decision; Exxon Mobil and Chevron before the open.
• 3 November (Tuesday): US midterm elections; 5 November (Thursday): French trade union general strike.