AI fund collapse rumored as US yields slide despite hot PPI

Markets:

• WTI crude rose $2.50 to $97.59
• The 10-year Treasury yield dropped 9.9 bps to 5.09%
• The S&P 500 gained 0.4%
• Gold increased $61 to $4166
• The Swiss franc outperformed, while the US dollar underperformed

The biggest development in US afternoon trading was a suspected blow-up at an AI-focused fund that might have held $40 billion in assets under management. The fund's latest reported holdings line up closely with some of the worst performers recently, including top positions in Nebius, Bloom, Lumentum and CoreWeave. Once that rumor began circulating, dip buying appeared in stock markets and gained momentum. The thinking may follow what happened with Situational Awareness, where buyers returned after the nature of the event became clear.

At the same time, the Treasury market continues to flash worrying signals, and the selloff in South Korea had ripple effects. US yields fell again despite one of the hottest PPI reports on record. That could point to fears of a credit event in AI names such as CoreWeave, whose debt has been under pressure. Along with the drop in yields, the US dollar weakened broadly, signaling what could happen if the AI trade experiences a real rout.

The dollar trade also factors in the Federal Reserve. At 11:30 pm ET, Warsh will take part in a round table in Asia during the IMF meetings. The market prices a 27% chance of an October hike, but even if he avoids giving a clear signal, his usual "we will bring down inflation" rhetoric may risk sounding like a hawkish sign. If that happens, more turmoil could hit markets to end the week, with uncertainty lasting until the Oct 28 FOMC.