Oil bought the war, bonds bought the fear

Friday had two stories, and they asked investors for opposite things.

The oil story. Brent crude futures reached $115.16 a barrel in London, the highest since 4 May, and stood at $114.99 by 13:00 GMT; US crude was at $101.27². Reuters had Brent on course for a 4.4% weekly rise, its third in a row, while WTI was on track for a small weekly fall². The reasons are listed in the copy, not in the charts: Houthi attacks on Saudi Arabia, an oil spill off the UAE, and reports that Washington and Israel have drawn up plans for renewed strikes on Iran after the US midterm elections^2,3.

The stock story. On Wall Street the Dow fell about 600 points in early trade, while the Nasdaq barely moved, a sign, the Wall Street Journal noted, that the AI rout of Thursday might be easing⁴. CNBC had the S&P 500 down 0.6% at the open and the Dow down 1.3%¹. Thursday’s selling had sent the Philadelphia semiconductor index down almost 7% and the Nasdaq down 2.6%, its worst day since June³.

The shelter. On Thursday investors ran to US government bonds, giving Treasuries their biggest rally in more than three years³. On Friday the ten-year yield edged up to 4.97%, still just under 5%¹. The VIX, the options market’s gauge of expected volatility, rose another 6% to 20.24¹. Almost a full quarter-point of Fed hikes for next year has been priced out this week³.

Elsewhere. Asia closed mixed. The Nikkei lost 0.34%, Korea’s Kospi gained 0.3%, and China’s CSI 300 rose 1.71% but still closed lower for the week for an eleventh straight time¹. Europe was 0.5% lower before New York opened³.

What to make of it. The two stories do not cancel out. Oil rose on a risk that may or may not arrive. Tech fell on a cost, the cost of borrowing to build data centres, that has already arrived. If you hold a broad fund, Friday reminded you why it holds both stocks and bonds: on Thursday one went down while the other went up. That is the boring design doing its job. Nothing here is advice.