Market Primer

This is the latest issue.

Issue 1, Oct 28, 2026

An oil war meets an AI boom: rates are rising everywhere, and AI profits are holding markets up

As published on Oct 28, 2026. Select an underlined phrase for the evidence behind it, as it stood that week; the layer pages show today's view.

The Strait of Hormuz, between the Gulf of Oman and the Persian Gulf, photographed from the International Space Station
The Strait of Hormuz, between the Gulf of Oman and the Persian Gulf, photographed from the International Space Station. Image: NASA, public domain

The shock starts at the energy base. The conflict with Iran has pushed Brent crude to $117 a barrel and drawn the US emergency oil reserve to its lowest since 1982. Commercial stocks on land are near normal, so the price is a premium for disrupted routes rather than a sign of empty tanks. Europe is paying most of the gas bill.

It reaches money through inflation. Consumer prices rose 3.74% over the year to September 2026, but measures of the underlying trend are cooling. The Fed raised rates in September to stop a second round of price rises, at a time when the money markets' cash cushion is gone. Long-term yields are rising on real rates and the term premium, not on fear of inflation, and the sell-off is global: Japan's exit from near-zero yields has removed an anchor for bonds everywhere.

Higher real yields have split the asset classes. Governments are refinancing at higher rates, housing is frozen, gold has slipped from its peak and bitcoin has missed the rally. Stocks sit at record valuations because record profits, carried by AI, justify part of them.

The AI build-out is the counterweight, and its own strains are growing. The cloud companies' spending is up 75% from a year earlier and now absorbs 77.3% of their operating cash flow. Chip sales are in a boom without precedent, and power equipment has become the bottleneck. Credit markets look calm, but strain is building in private credit and commercial property, which is where a squeeze on financing would show first.

What would change the picture

  • Long-run inflation expectations above 2.6%. The oil shock would be spreading into wages and prices, and the Fed would have to do more. Layer 4
  • A ceasefire or reopened Gulf routes. With land stocks near normal, the oil premium would fall fast and ease every later link. Layer 10
  • The real 10-year yield above 3%. Record stock valuations would lose their footing. Layer 8
  • Cuts to cloud spending guidance. The one force holding up profits would weaken. Layer 14
  • The high-yield spread above 4.5 percentage points. Credit would have stopped looking past the strain underneath. Layer 2
  • The Fed buying bills to add reserves. Funding strain would have forced its hand while it is tightening. Layer 1