Asian markets fall as US inflation raises rates
Stocks experienced a decline in Asia on Thursday, with the technology supply chain particularly affected, following a faster-than-anticipated rise in US consumer price inflation that heightened expectations for action from the Federal Reserve later this year. MSCI’s broadest index of Asia-Pacific shares outside Japan experienced a decline of 3.3 percent, primarily driven by an 8 percent drop in South Korea’s KOSPI, while the Nikkei 225 recorded a decrease of 4.8 percent. S&P 500 e-mini futures experienced a decline of 0.5 percent. “The selloff in Asia looks less like a sudden deterioration in technology fundamentals and more like a repricing of the cost of capital,” said Charu Chanana. “Investors are not questioning whether AI demand exists,” she said. “They are increasingly questioning what price they should pay for that growth when interest rates are high, volatile and potentially moving higher again.” Overnight, stocks on Wall Street recorded their third consecutive day of declines following a greater-than-anticipated acceleration in US consumer price inflation for September. The S&P 500 declined by 1.1 percent, while the Nasdaq Composite experienced a drop of 1.9 percent.
Additionally, a measure of semiconductor stocks continued its downward trend for the sixth consecutive day, as the anticipation of elevated interest rates adversely affected the shares of Oracle, CoreWeave, and other AI-related companies that are particularly vulnerable to increased borrowing costs. “While the initial selloff was triggered by the hotter-than-expected CPI, tech was the main driver of today’s selloff,” analysts wrote in a note. “AI was again the main challenge … with financing risks and IPO timelines still at the centre of the story.” Asian stocks within the technology hardware supply chain experienced significant declines on Thursday. Taiwan Semiconductor Manufacturing Company experienced a decline of 2 percent, while Samsung Electronics saw a significant drop of 9.3 percent. Memory chipmakers SK Hynix and Kioxia Holdings faced substantial losses, plummeting more than 11 percent each. Additionally, AI investor Softbank Group recorded a loss of 9.4 percent. Some strategists have identified grounds for optimism, pointing out that trading volumes remain relatively low and that October historically presents a period of heightened volatility for markets. “I’m not worried, because stocks are not expensive, there is no sign of a recession, and demand still massively exceeds supply in most parts of the AI story,” said Mark Matthews.
The backdrop of investor anxiety prompted safe-haven purchases of government bonds, resulting in a decline of 7.8 basis points in the yield on the US 10-year Treasury bond, now at 5.110 percent. “We continue to think that yields at current levels offer decent value,” analysts wrote in a note. “We are not convinced that the Fed will have to deliver back-to-back hikes on the back of one set of CPI numbers.” The inflation data has altered expectations regarding the Federal Reserve’s interest rate trajectory, as traders initially assigned approximately equal probabilities to a rate increase later this month, only to subsequently retract those positions. Fed funds futures currently indicate a 75 percent implied probability that the US central bank will maintain its current stance during the upcoming two-day meeting on October 28, reflecting minimal change from the previous day, as per the CME Group’s FedWatch tool. “The upside surprise in US CPI and the subsequent rally in bonds is highly counterintuitive,” said Prashant Newnaha. “The cleanest read through is that the slump in AI is repricing growth expectations down, leading to bonds serving as a hedge for stocks.”
Against the yen, the US dollar experienced a decline of 0.4 percent, settling at 157.74 yen, whereas the euro saw an increase of 0.6 percent, reaching $1.1225. The Australian dollar experienced a decline of 0.2 percent, settling at $0.6956, following an unexpected decrease in employment figures, which fell by 39,300 jobs in September, contrary to the anticipated increase of 20,000 jobs. Investor attention shifts to the forthcoming speeches from Federal Reserve officials in Bangkok, notably Chair Kevin Warsh, as market participants seek insights into the US central bank’s impending decisions. Additionally, the release of US producer prices and retail sales data later on Thursday is anticipated. AI chip leader TSMC is set to announce its earnings for the third quarter during the upcoming Asian trading session. In oil markets, Brent crude experienced a decline of 1.7 percent, trading at $104.20 a barrel, as traders assessed the implications of US sanctions relief on supply in juxtaposition with the ongoing attacks on shipping routes through the Strait of Hormuz.
