Stocks climb as oil prices retreat under US$100 per barrel

On Tuesday, stock markets climbed as oil prices fell under US$100 per barrel, easing concerns about government borrowing costs. The Nasdaq index in the US rose 0.8% after hitting a record high on Monday due to AI enthusiasm. This led to gains across European and Asian stock markets. Oil prices dropped over 1% as Gulf exports returned towards pre-war levels, with Brent North Sea crude falling below the US$100 mark.

Dan Coatsworth, head of markets at AJ Bell, noted that interest-rate sensitive stocks like real estate and consumer cyclicals benefited from the drop in oil prices. Arne Lohmann Rasmussen pointed out that Gulf exports (excluding Iran) averaged 19.2 mb/d in September, which was 81% of pre-war levels, though Iran's curtailment of tanker traffic through the Strait of Hormuz reduced exports to 91% of pre-war levels.

This supply cut has driven up fuel costs. In the UK, the average diesel price at the pump hit a record high last week. Traders remain uncertain about the Middle East crisis, which puts pressure on central banks to raise interest rates to combat energy-fuelled inflation. This has caused government bond yields to soar to unprecedented levels, raising worries about ballooning debt.

The rise of AI data centers, servers, and chips has compounded this issue, making tech titans unable to rely on their cash reserves. Borrowing by firms like Google, Amazon, and Microsoft reached around US$500 billion in the nine months since January, with Goldman Sachs expecting further increases in 2027, to US$1.2 trillion. Chris Della Fave, senior vice president at Post Oak Group, said that AI accounts for 25% of all corporate bond issuance - up from four percent two years ago.

David Morrison, senior market analyst at Trade Nation, pointed out that only the technology and energy sectors are trading above their 50-day moving average, indicating a potential danger if the AI story weakens.