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Briefing.com Summary:
*AI slowdown concerns have weighed on market sentiment and the AI momentum trade.
*Oil prices have risen back above $100.00/bbl, driven by supply concerns.
*The fed funds futures market shows a high probability of a rate hike by the Fed this week.
Oil prices have risen back above $100.00/bbl (WTI +4.3% to $104.37) following the closure of Saudi Arabia's East-West pipeline and reports indicating the meeting between Iran and Gulf Cooperation Council members has been "postponed." That's one problem.
The bigger problem at the moment for the stock market is the call by AI company leaders (Amodei, Altman, and Musk) to slow down the development of AI models due to security concerns in general and specifically the ability of models to learn and act in a way that is beyond human understanding and control. That has thrown a wrench in the AI momentum trade.
Many of the leading stocks across the hyperscaler, hardware, and semiconductor spaces are trading lower in pre-market action.
Currently, the S&P 500 futures are down 56 points and are trading 0.6% below fair value, the Nasdaq 100 futures are down 526 points and are trading 1.7% below fair value, and the Dow Jones Industrial Average futures are down 200 points and are trading 0.3% below fair value.
The one lucky break is that interest rates have remained subdued so far, yet a 10-yr note yield that is very close to sporting a 5-handle (currently 4.98%) risks creating more upset for the stock market if it rises above and stays above 5.00% at a time when oil prices are on the rise.
Interest rates will be a focal point this week as central bank decisions by the Federal Reserve, Bank of England, and Bank of Japan will have market-moving sway, particularly the ones from the Federal Reserve and Bank of Japan, the latter of which will have yen-based carry trade implications.
The FOMC meeting is September 15-16. We are aligned with the notion that the FOMC will vote to raise the target range for the fed funds rate by 25 basis points to 3.75-4.00%. There is an 88.5% probability of such a move in the fed funds futures market, according to the CME FedWatch Tool.
For now, though, the equity futures market is assigning a 100% probability to a lower open for the major indices, with oil prices, AI slowdown worries, and rate-hike concerns circulating to drive a risk-off tone.
