Dow Futures linked to the primary U.S. stock indices indicate a downward trend, as investors monitor heightened bond yields and increasing oil prices, influenced by ongoing worries regarding supply disruptions in the Middle East. Analysts indicate that risk assets could face challenges as concerns persist regarding the stability of global debt markets, especially in Europe. Applied Digital reports a significant increase in revenue; however, a substantial rise in equipment expenditures underscores the considerable costs associated with financing the development of artificial intelligence infrastructure. Samsung’s preliminary third-quarter operating profit falls short of certain forecasts, while the minutes from the Federal Reserve’s September meeting indicate a lack of urgency to increase interest rates in the upcoming month.
Dow futures dipped on Thursday. By 02:54, the Dow futures contract had decreased by 262 points, or 0.5%, S&P 500 futures had decreased by 23 points, or 0.3%, and Nasdaq 100 futures had decreased by 154 points, or 0.5%. The primary indices on Wall Street experienced a decline in the previous session. The disparity in yields that traders are seeking to hold French 10-year bonds compared to their German equivalents was on track for its most significant increase since the COVID-19 pandemic in 2020. Despite a subsequent pullback, France found itself once again at the “epicentre of a global bond market selloff,” according to analysts. Concerns regarding France’s fiscal stability, coupled with a recent increase in oil prices, have led to a widespread rise in bond yields globally, consequently exerting pressure on risk assets. In the U.K., the benchmark 10-year gilt yield reached a level not seen since 2007, while 10-year Italian yields also experienced an increase. “In terms of the last 24 hours, it was clear that European contagion risk was back on the agenda, as there was a sharp widening in the spreads of multiple countries. So that marked a change in the mood relative to the last few days, as the financial market stress had generally been easing since last Friday,” the Deutsche Bank analysts wrote. While a robust auction of 10-year Treasuries contributed to the stabilisation of the U.S. bond market, the longer-dated 30-year yield nonetheless surged to a peak not observed in over twenty years. This morning, the 10-year yield was last recorded at 5.327%.
According to analysts, the uncertain outlook for fixed income markets is further compounded by a surge of potential artificial intelligence-linked debt deals, which are expected to maintain elevated Treasury yields. A collection of financing agreements is currently being developed within the AI industry, as firms seek the capital required to sustain the swift expansion of the infrastructure supporting this emerging technology. Broadcom is in the process of securing over $50 billion in financing for the custom AI chip being developed in collaboration with OpenAI, the creator of ChatGPT, as reported. Simultaneously, the WSJ reported that cloud leader Oracle is engaged in negotiations with Apollo and Goldman Sachs regarding a significant chip acquisition. Earlier this week, a source reported that Elon Musk’s SpaceX is engaged in discussions with lenders to secure $40 billion in financing for the acquisition of Nvidia processors. “No one will be surprised by any of the WSJ details, but the article makes clear that the tidal wave of AI-linked debt is still building, and until the momentum cools, it will be very hard for Treasury yields to go down,” the analysts said.
Despite the substantial expenditures necessary to sustain and enhance AI capabilities, the surge in enthusiasm surrounding the technology has demonstrated little indication of diminishing. Consider Applied Digital, a company that manages data centers equipped with advanced AI chips. Fiscal first-quarter revenue surged by 322% compared to the same period last year, reaching $342 million, significantly exceeding Wall Street projections. Adjusted core earnings of $64.4 million surpassed expectations as well. Despite the company generating substantial sales, it indicated that the acquisition of property and equipment – a measure of capital expenditures – surged by 730% relative to the previous year, reaching $2.074 billion. That significantly exceeded Applied Digital’s cash flow of $64 million. “[T]hese results exemplify the extremes of the AI industry, with rapid top line growth but huge capital requirements,” the analysts said. Shares of Applied Digital experienced an uptick in after-hours trading.
Meanwhile, Samsung Electronics projected its most substantial third-quarter profit to date on Thursday, driven by strong demand for memory chips propelled by AI advancements, although the figure slightly fell short of the upper range of market expectations. Samsung shares experienced a decline amid fluctuating trading conditions, contributing to a decrease in the KOSPI index. Rival SK Hynix also experienced a decline. The world’s largest memory chip maker announced a preliminary operating profit of approximately 107.40 trillion won for the three months ending September 30. The figure increased almost tenfold from the 12.2 trillion won profit recorded a year prior, yet it fell short of projections of 108.67 trillion won. Operating profit, however, exceeded LSEG estimates of 106.1 trillion won. Samsung reported that third-quarter sales surged to 195 trillion won, a significant increase from 86.06 trillion won in the same period last year, according to a reports. The company achieved its fourth consecutive quarter of record profits.
Elsewhere, minutes from the Federal Reserve’s September policy meeting seemed to validate recent concerns that officials are not eager to increase interest rates again this month. The readout from the gathering, which saw policymakers lift rates for the first time since 2023 in a bid to corral inflation, showed that “participants emphasized […] that they approached each meeting with an open mind and decisions at future meetings would depend on incoming information.” Still, “most” rate-setters assessed that another increase in the key federal-funds rate would “likely be appropriate by year end.” This, along with recent dovish remarks from certain policymakers, suggests that the Fed may choose to maintain its current stance at the meeting scheduled for October 27-28, while still keeping the possibility of a rate increase available for the final gathering of 2026 in December. According to CME FedWatch, there is approximately a 78% likelihood that the Fed will maintain current rates this month, alongside a 67% probability of an increase in December.
