Saudi Oil Under Fire | $112 Brent Meets a Bond Rally | Meta Spends Past Its Cash

Good morning, Slaters!

A drone reached a Saudi oil field on Wednesday. Brent climbed near $112 overnight.

Then the bond market did something it rarely does in this war. It rallied.

For months, higher oil has meant higher yields. This morning, investors read the shock as a hit to growth instead. Asian chip stocks fell hard, and Nasdaq 100 futures were down about 1.7% around 7 a.m.

The thread running through it all is cushions. The Gulf's supply cushion runs through Saudi Arabia. Meta Platforms (META) just spent past its cash flow. Investors are testing how much padding is left.

Let's get into it.

The Gulf's backup plan runs through Saudi Arabia. Now it's a target.

A drone aimed at Saudi Aramco's Shaybah oil field was intercepted Wednesday. Falling debris killed two people and injured two, Saudi Arabia's Energy Ministry said. Operations were not affected. No group has claimed the attack.

Hours later, the State Department ordered non-emergency U.S. staff and their families out of Saudi Arabia.

Here's why the location matters. Hormuz traffic has not recovered, yet Kpler data show Gulf crude exports averaged 24.6 million barrels a day in the week to Oct. 18, above the prewar 23.3 million. Bypass routes, many across Saudi soil, made up the gap.

Brent traded at $112.18 at 5:33 a.m. ET, up 3.1%, and was still near $111.72 at 7:08 a.m. On Wednesday, a similar spike faded within hours. WTI was near $99.

The risk also gained a calendar. The New York Times, citing unnamed U.S. officials, reported that U.S. and Israeli planners drew up options for a short campaign against Iran after the Nov. 3 midterms. Trump has not approved any plan, the report said.

Separately, Trump told reporters, "We are not negotiating with" Iran, and that "something one way or another will happen, fairly soon." Iran's foreign minister said indirect talks were continuing.

The market signal?

The bypass is now part of the risk. Oil's calm rested on routes around Hormuz, and many of those routes cross Saudi Arabia. Shaybah kept pumping, so supply is intact for now. But the premium can now rebuild on threats to the backup system, not just the strait. Watch whether Brent holds above $110 through the U.S. session, and the Kpler tally for the week ending Oct. 25.

Oil jumped nearly 3%, and Treasuries rallied anyway

For most of this war, an oil spike meant higher yields. Traders read it as more inflation and a tighter Fed. Overnight, the two moved in opposite directions.

The 10-year yield fell to about 5.09%, roughly 4 basis points below Wednesday's 5.13% close. The 30-year slipped to about 5.38% from 5.42%. Gold fell 1.1% to $4,103.70, so it did not trade as an inflation hedge. The VIX rose to 18.36.

That is what a growth scare looks like. Commerzbank's Hauke Siemssen called it a "tentative risk-off, with U.S. Treasurys supported and struggling equities." The Kospi lost 3.5%, the Nikkei 2.7% and the Hang Seng 3.0%.

Bitcoin fell with the risk trade. It slid back to its 50-day average early Thursday and traded near $81,870 at 7:08 a.m., down 2.6%. That came after U.S. spot bitcoin funds took in about $1.08 billion over three sessions, per SoSoValue. The buying didn't hold the price.

The market signal?

Bonds are betting on slowdown, but the long end is still fragile. Gold fell and Treasuries rallied while oil rose. That points to growth fear over inflation fear. Yet the inflation channel is still open: heating oil rose 1.9%, and Wednesday's 20-year auction cleared at 5.469%, the highest since the 20-year bond returned in 2020. If the haven bid fades in the U.S. session, this was positioning, not a new regime.

IBM's CEO says clients are worried about AI returns

Clients are "getting worried if some of the AI spending [is] completely out of control with no real return." That was IBM (IBM) CEO Arvind Krishna on Wednesday's call, according to accounts of the call.

The quarter itself was a beat. Revenue rose 5% to $17.10 billion, against an LSEG estimate of $16.82 billion. Operating earnings of $2.95 a share topped the $2.86 estimate. IBM raised its free cash flow outlook and held its revenue growth forecast at 4% to 5%.

The stock rose as much as 7.3% after hours, then turned. By 7:08 a.m. it was about 4.9% below Wednesday's close in premarket trading, though Nasdaq futures were falling too.

That matters because IBM sells to the companies doing the spending. Lam Research (LRCX) posted record revenue of $8.22 billion, up 54%, and guided above analysts' average. It was still down about 7% in premarket trading at 7:08 a.m.

Meta shows the strain from the buyer's side. Revenue rose 26% to $64.60 billion, against an LSEG consensus of $63.37 billion. But capital spending of $34.91 billion topped operating cash flow of $32.79 billion, leaving free cash flow at negative $2.12 billion. Tesla (TSLA) went the other way, cutting its 2026 spending plan to about $20 billion from more than $25 billion.

The market signal?

Returns, not demand, are now the AI question. Meta is still raising its spending floor. What changed is who is asking whether it pays. One reading is that a vendor relaying client doubts can hit supplier stocks before it shows up in orders. Watch whether chip declines hold after the open, and whether other enterprise tech firms describe the same caution.

France's bonds sold off alone

France's 10-year yield touched 5.06% early Thursday, its highest since 2002. Its premium over German Bunds widened to 164 basis points, the most since 2011, per LSEG data.

The timing is what makes this different. Treasuries and Bunds both gained this morning. Until now, France's own risk was hard to separate from the global long-bond selloff. Today the two came apart.

The drivers are local: a contested budget, street protests and a deficit running ahead of target. The French 10-year rose more than 20 basis points on the week through Wednesday, the biggest weekly jump among the largest economies. "We thus see little reason to turn optimistic on France," Commerzbank's Erik Liem said Wednesday.

The market signal?

A spread that widens while havens rally is a country problem. France is being priced as a fiscal outlier, apart from the global rates story. The counterargument is that a 20-point week has already priced much of the bad news. Friday's Moody's review is the test. A narrower spread after the decision says the risk was priced. A wider one while Bunds rally says investors are still repricing France.

Meta's new share class reads like a split. It works like a funding tool.

Meta will create a listed, non-voting Class C stock. When its new charter takes effect Jan. 19, 2027, each Class A and B holder gets one Class C share per share owned. Meta expects the Class A price to reflect a two-for-one split. Voting power does not change.

The key line is what comes after. Meta said it "expects to conduct offerings of Class C common stock from time to time." A non-voting class also lets Meta raise equity from sovereign investors under U.S. foreign-investment rules, the filing says.

The math explains the timing. Meta has issued $24.91 billion of debt this year and bought back no Class A stock in the first nine months. Its 2026 spending range is now $135 billion to $145 billion.

The filing also flags the costs. It says Mark Zuckerberg "would be able to achieve substantial liquidity in his holdings without diminishing his voting control." It warns Class C may trade "at a significant discount." No shareholder vote was needed, because entities tied to Zuckerberg and Priscilla Chan consented.

The market signal?

Equity just joined debt in the AI funding stack. Cash flow and bonds have paid for the build-out so far. Meta has now lined up a third source: stock without votes. The dividend is neutral today. Each later sale dilutes holders, and more so if Class C trades at a discount. Watch the size and timing of the first offering, and how index providers treat the new line.

• Four tests of the growth scare before the Fed
• Today, 8:30 a.m. ET: weekly jobless claims. Economists expect 200,000.
• Today, 1 p.m. ET: Treasury sells $26 billion of five-year inflation-protected securities.
• Friday: Moody's reviews France.
• Next week: The Fed meets Oct. 27-28, in the same week as 2-, 5- and 7-year note sales. The ECB meets Oct. 29. Kpler's tally for the week ending Oct. 25 will be the first to include the Shaybah attack.
• The market signal? Every test asks whether oil means inflation or slowdown.
• This morning's bond rally bet on slowdown. Claims and the TIPS sale test that within hours. If yields hold their drop through the auction with Brent above $110, the growth read gains weight. If yields climb back toward 5.13%, the rally was positioning, and the Fed walks into its meeting with inflation back in front.

That's it for today's Slate. Thursday tested three cushions at once: the Saudi routes around Hormuz, the cash behind AI spending and the bond market's read on oil. The bypass is now a target. One of the biggest AI spenders is lining up new stock to sell. And bonds are betting on slowdown over inflation. Watch which cushion gives first.

Today's reply prompt: Is this oil shock an inflation problem or a growth problem for your portfolio?