US equities weakened as AI concerns weighed on tech, with the S&P 500 lower. Brent crude hit US$110 amid ongoing supply concerns. US 10-year yields ended a choppy session at 5.07%

US equities ended last week on a soft note, with the S&P falling 1.1% on Friday as renewed concerns over the sustainability of AI-related investment weighed on technology stocks. The Nasdaq underperformed, while chipmakers extended their decline to an eighth consecutive session as investors questioned prospective returns from the AI infrastructure buildout. The weakness in technology stocks contributed to a broader deterioration in risk sentiment, with the VIX ending the week near 20, its highest level since late July.

Oil prices added to the cautious market tone, with front-month Brent briefly reaching $110 despite the IEA accelerating the remaining 100 million barrels of its emergency release. Physical markets remain tight amid doubts over additional Russian diesel supply, disruptions in the Gulf and renewed Ukrainian attacks on Russian refining capacity. Meanwhile, US lawmakers introduced legislation aimed at blocking the Trump administration’s deal with Moscow to release Russian diesel, adding further uncertainty around the supply outlook.

There was choppy price action in US Treasuries, with the 10-year yield trading in a wide range before ending at 5.07%. Rates were caught between rising risk aversion as equities declined and upward pressure from higher oil prices. A Treasury Department survey of market participants disappointed investors. Some had expected it to seek views on reducing longer-term debt issuance, potentially including ending 20-year bond sales. Instead, the survey asked more generally about potential future changes to auction sizes, given structural shifts in investor demand.

Market pricing for the October FOMC has fallen below a 20% chance of a 25bp hike. Fed Chair Kevin Warsh offered no fresh policy signals on Friday, saying he would not prejudge the October or December meetings. He reiterated the Fed’s commitment to price stability and noted that it had removed some policy accommodation at its previous meeting.

There was limited net movement across G10 currencies, with the US dollar index closing marginally lower from the NZ close. The NZD and AUD were little changed, looking through weaker risk sentiment. After gaining during Asian trading, NZD/USD peaked near 0.5675, its highest level this month, before retracing. The key NZD crosses also saw limited net movement. The latest CFTC futures positioning data showed further US dollar buying by speculative accounts, with the aggregate dollar long rising by US$9.5bn and the euro short reaching its largest in a decade.

NZ fixed income yields rose in Friday’s local session, largely reflecting weaker offshore bond markets. Domestic data also supported the move, with September’s inflation partials nudging our Q3 CPI estimate up to 3.9% and pointing to upside risk around our Q4 forecast. Two-year rates closed 9bp higher at 4.07%, while the 10-year rate rose 5bp to 4.69%, flattening the 2s10s curve to +62bp. The curve reached a low in late-September near +60bp.

The September services PMI is released today, after edging up to 51.2 last month but remaining below its long-run average. Friday’s manufacturing PMI was notably stronger, rising sharply to 56.5. China’s Q3 GDP and monthly activity data will provide a read on momentum heading into year-end, with stronger policy support likely to have stabilised growth and kept the full-year target within reach. Canada also releases CPI data.

Stuart Ritson is a senior Strategist at BNZ Markets.