Do markets smell war?

A fall in the US stock market and a jump in oil prices on Friday fueled speculation about the escalation of conflicts in the Middle East. Are traders anticipating a new risk or are there several different stories behind this synchronicity?

World Economy _ Daniyal Rahimi; The American stock market faced heavy selling on Friday, October 16; Nasdaq Composite fell by 2.14% and S&P 500 by 1.09%. At the same time, Brent settled near $110 and US oil above $100. The juxtaposition of these two moves fueled the perception that markets are anticipating a new military escalation. But surveys show a more complicated picture.

The sale of shares had started before Friday. Reuters reported on Thursday that semiconductor companies had lost $1.64 trillion in value over the previous six sessions.

At the center of the concerns was Corveau; A company that rents the processing power of data centers to customers and needs heavy capital for development. Investors were worried that the company's income would not be enough to pay expenses and debt obligations on time. The Wall Street Journal has highlighted this concern; Corvio shares fell by around 12% on Friday.

But why did the problem of one company drag others down?

Because the income of different sectors of this industry depends on each other's spending. Data center companies buy processing chips from Nvidia and AMD, Broadcom supplies equipment and related chips, Micron sells memory, and Dell supplies servers. If it becomes difficult to finance the development of data centers, the market may expect orders from these suppliers to be lower than expected.

According to the Wall Street Journal, sales pressure also reached cloud service giants such as Amazon and Alphabet; Companies that themselves have large expenditures for artificial intelligence and must show the return on these investments to shareholders. The market was asking questions about the whole chain: what will the future revenue be and will it cover the cost of equipment, electricity and financing?

This chain of concern went from debt risk to the prospects of orders and company profits; The actual order reduction of all these companies has not yet been confirmed, but investors factored the possibility into the stock price.

Reuters also cited Entropy's lower valuation review for a possible IPO as a factor of concern. The increase in oil prices increased the pressure; Rob Haworth of the U.S. The bank believes rising oil prices are weighing on stock valuations and have made traders more cautious ahead of the holiday.

oil; A real supply concern, not a definite news of a new war

In the oil market, military news played a direct role in increasing supply concerns. Brent rose 3.7 percent to settle at $109.86; WTI also increased by 3.5% to $101.41.

According to a Reuters report, the interception of a missile heading to Yanbu, an important Saudi export port to bypass Hormuz, raised concerns about the security of alternative routes; However, no damage was reported to the infrastructure of the port.

The intensification of attacks around Hormuz and the shutdown of a unit of Russia's Ryazan refinery after a drone attack also put the supply of oil and products in the center of concern.

This reaction indicates an increase in the cost of covering the risk of supply disruption. Traders do not need to know about a future attack to buy oil; Increasing the probability of disruption, even without its occurrence, can increase price volatility.

To attribute all these fluctuations to a possible war, evidence from several markets must be combined.

Cash gold, unlike the previous war, does not show signs of a war in its price, and at that time it faced a sharper fall. If the fear of this war were to spread to other markets, global gold should experience a further drop due to inflationary risks, interest rates and other factors.

In treasury bonds, yields also fell, which was not a sign of war. In an October 16 analysis, JPMorgan attributed the midweek bond buying to concerns over the economic effects of AI stock sales.

Markets are pricing in the risk of an escalation of the conflict, but falling stocks and rising oil do not suggest they are aware of an imminent attack. Evidence from this meeting shows military concerns in oil and debt and profitability concerns in technology; Two paths that pushed each other, but did not have the same cause.