U.S. Indexes closed lower on Monday, albeit finishing well off earlier lows, with weakness primarily driven by chip and memory names after a group of prominent AI CEOs, including those from OpenAI, xAI and Anthropic, called for a slowdown in the pace of AI development amid safety concerns. The majority of sectors finished lower, although Communication Services, Health Care and Consumer Staples outperformed. The AI developments weighed heavily on semiconductor and memory names given their significant exposure to the AI buildout, while cybersecurity names such as CrowdStrike (CRWD) and Palo Alto Networks (PANW) rallied. Software names also outperformed as concerns over increasingly advanced AI replacing existing software services eased. Elsewhere, Financials came under pressure after Bank of America (BAC), speaking at the Barclays conference, warned that sales and trading revenue is expected to be roughly flat Y/Y. Citi (C), however, pared earlier losses after guiding to low-single-digit Y/Y growth in investment banking revenue and mid-single-digit growth in markets revenue. Crude prices settled higher but notably off earlier peaks. Oil initially rallied after the Iran-Gulf nations meeting was postponed and Saudi Arabia’s East-West pipeline was shut down, with the pipeline expected to remain mostly out of service for several weeks. However, benchmarks pared gains on more constructive geopolitical headlines after President Trump said Ukraine and Russia had agreed not to strike each other’s energy infrastructure and that Iran wants to make a deal, while ILNA, citing Pakistani sources, reported that the US is seeking a step-by-step agreement with Iran. As oil retreated from its highs, Treasuries moved off their lows, with the long end ultimately rallying and the curve flattening. The AI developments may also have provided some support further out the curve, with a slowdown in AI development potentially reducing CapEx requirements and, consequently, corporate debt issuance to fund the AI buildout. In FX, the Dollar rallied amid the risk-off environment, while the Antipodeans, Japanese Yen and Euro lagged. Gold tumbled but finished off its lows, remaining below USD 4,300/oz. Attention now turns firmly to Wednesday’s FOMC decision, where expectations for a rate hike have continued to build. A Reuters poll conducted after Friday’s CPI report found 85% of forecasters expect a 25bp hike, while money markets assign around a 90% probability to such a move. Elsewhere, Oil closed higher by 0.8% while Gold ended Monday’s session with a 1% loss.
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