Morning Bid: Go slow AI

Markets anticipate the Federal Reserve raising interest rates on Wednesday amid rising oil prices following conflicts in the Middle East. While the recent inflation report did not provide sufficient evidence for the Federal Reserve to meet its 2% target, concerns linger over underlying pressures in service sector prices and other areas.

The key question facing markets now is not only whether the Fed will raise rates but also the extent of further tightening. The Fed's upcoming projections will play a crucial role in determining this. Currently, up to four rate hikes are priced into the futures market. Meanwhile, Brent crude oil prices surged above $108 per barrel after attacks in the Middle East continued into the weekend, including the temporary shutdown of Saudi Arabia's East-West pipeline, which could impact up to 4% of global crude supply.

The weekend also saw postponed talks between Iran and Gulf governments on managing the Strait of Hormuz. At the same time, industry employees issued several warnings against the rapid pace of AI development, suggesting a potential slowdown. OpenAI CEO Sam Altman announced a possible delay to the company's IPO in 2027, while U.S. President Donald Trump dismissed the warnings as "outlandish."

Chinese state media, however, labeled Anthropic CEO Dario Amodei's call for an AI slowdown as a "Cold War playbook" targeting China. In equities, AI-linked stocks experienced a decline on Monday due to these safety concerns, with Nasdaq futures falling before the opening bell and Asian shares closing lower, particularly in major chipmakers.

This development may prompt markets to consider the possibility that a slowdown in AI development could also lead to a deceleration in the construction of AI infrastructure, such as data centers, chips, and computing equipment. MSCI's AI basket index has risen over 120% since the launch of OpenAI's ChatGPT model in 2022, outpacing global stock benchmarks.