Global rates reset, AI angst and oil's long haul: The financial week in five charts

Every Friday, Reuters Open Interest (ROI) distills the financial week into five key charts, spotlighting the major trends, surprises, and overlooked moves that defined the past five days. **1. LIFTOFF** The Federal Reserve raised interest rates for the first time in three years on Wednesday, lifting the benchmark rate by a quarter point to 3.75%-4.00%. The messaging was hawkish, with all 12 voting FOMC members supporting it and 16 out of 18 participants expecting another rate rise before the end of the year. It was also accompanied by decisive language from Fed Chair Kevin Warsh, who noted both persistently elevated U.S. inflation and the strength of the underlying economy. Long-dated Treasury yields nudged lower, indicating that the move has eased some fears about the Fed's ability and willingness to combat inflation under Warsh. Next up was a hawkish hold from the Bank of England, with Governor Andrew Bailey warning that the likelihood of a hike would rise if energy price volatility persisted. Markets on Wednesday were pricing in an 80% chance of a hike at the BoE's next meeting in November. Finally, the Bank of Japan hiked rates on Friday by a quarter point, as expected, adding to the week's shift toward tighter policy. But markets were unconvinced by the hawkish message after dissents from two policymakers, with the yen later slumping to a two-week low against the dollar. **2. THE COST OF GOING SLOW** Leaders of major AI companies this week called for a slowdown in the technology's development amid dire warnings of its threat to humanity. This caused some market jitters early in the week because a push to "go slow" could, in theory, lead to a pullback in the gigantic buildout of AI infrastructure, such as data centers, chips and computing equipment. If that were to materialize, it could obviously have broad market implications. AI-related stock indexes have risen more than twice as quickly as global stock benchmarks since the launch of OpenAI's ChatGPT model in 2022, with MSCI's AI basket up more than 120%. However, the likelihood of any slowdown seems low given the enormous geopolitical stakes and the potential costs of falling behind. **4. HIGH FIVE** The 10-year US Treasury yield US10YT=RR, the most important borrowing rate in the world, this week rose above the psychological 5.00% barrier for the first time in three years. It reached 5.04%, the highest since the summer of 2007, when the global financial crisis was beginning to emerge. The 10-year Treasury note is considered the ultimate "risk-free" asset, and its yield is the benchmark borrowing cost against which trillions of dollars of mortgages, corporate debt and other loans are referenced. A rising yield can reflect solid US economic growth, worries that inflation is too hot, or concerns about the budget deficit and federal debt. This current surge may be a mix of all three. What's more, it could rise yet further now that the Fed appears to be kicking off a fresh tightening cycle. **5. DIESEL DEFICIT** The global diesel crunch has continued to deepen, with refining margins hitting record highs in August and the average US national diesel price climbing above $6 a gallon for the first time last week. The squeeze reflects refinery disruptions across the Middle East and Russia. Damage to plants in the Gulf has curbed exports, while Ukrainian drone strikes have slashed output at Russian facilities. US President Donald Trump claimed to have brokered an energy infrastructure truce between Russia and Ukraine this week, but so far neither appears to be adhering to it. But even if such a deal were successful, it would not quickly undo damage that has already been done to refining capacity. **3. FROM SPRINT TO MARATHON** The Iran-aligned Houthis' rapid advances in recent weeks have strengthened their grip on the Bab el-Mandeb Strait, while attacks on Saudi Arabia's East-West oil pipeline have temporarily halted flows to the Red Sea and disrupted loading at the Yanbu export hub. That heaps fresh strain on an oil market already pressured by the effective closure of the Strait of Hormuz. While news that the Saudis are redirecting more crude via Oman helped moderate crude prices, Brent LCOc1 is still holding above $100 a barrel. What initially looked like a short-lived supply shock is becoming a prolonged, unpredictable test of global economic endurance. The sprint may be over. Now comes the marathon.

Global rates reset, AI angst and oil's long haul: The financial week in five charts

Liftoff and global rate resets

AI slowdown fears and market jitters

Treasury yields and the diesel crunch

Oil supply strains become a longer test

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