Market Overview
Global market sentiment entering the European session is largely shaped by escalating geopolitical tensions in the Middle East, which have driven crude oil prices significantly higher. This rise exacerbates inflation concerns, reinforcing expectations for further interest rate hikes from major central banks. Compounding the pressure, particularly on technology stocks, are calls from prominent AI leaders for a slowdown in development due to safety concerns.
Asian markets presented a mixed picture, with early gains in Australia fading and several major indices closing lower. South Korea’s Kospi led regional declines, while Hong Kong’s Hang Seng posted modest gains. Tech shares across Asia experienced a notable sell-off following the new warnings from AI industry leaders. Meanwhile, gold prices slipped as investors braced for impending rate hikes from both the Federal Reserve and the Bank of Japan.
Markets
Australian shares, as measured by the S&P/ASX 200 (^AXJO), ended the day largely flat, closing up 0.10% at 8,749.90, as an initial rally fizzled. South Korea’s Kospi (^KS11) index led losses across broader Asian markets, closing down -3.26% at 6,684.37, impacted by tumbling tech firms. Japan’s Nikkei 225 (^N225) fell -0.81% to close at 63,492.99, also reflecting broader tech sector declines. In contrast, Hong Kong’s Hang Seng (^HSI) index was trading up 0.36% at 24,894.87 at the time of writing.
Energy markets saw significant gains, with Brent Crude (BZ=F) trading up 2.77% at $107.51 and WTI Crude (CL=F) up 2.80% at $102.85. Spot Gold (GC=F), typically seen as an inflation hedge, was trading down -0.06% at $4,363.70.
The 10-Year Treasury yield (^TNX) was trading at 4.97%, up 3.10 basis points, as analyst commentary noted nominal and real Treasury yields breaking to new highs amidst Federal Reserve rate hike expectations.
What Drove Markets
Renewed attacks in the Middle East, including strikes on Saudi Arabia and ships in the Persian Gulf, the closure of a key Saudi oil pipeline, and an advance by Yemen’s Houthis, have fueled a significant spike in crude oil prices. This surge in energy costs exacerbates inflation concerns globally and reinforces expectations for central bank tightening. The postponement of a key meeting between Iran and Gulf states in Oman to discuss keeping the Strait of Hormuz open further tested market nerves. An attack on a merchant vessel also occurred in the Strait of Hormuz. Average diesel prices in the US rose above US$6 a gallon on September 11 for the first time.
Markets are strongly pricing in a Federal Reserve rate hike this Wednesday (Thursday AEST), its first tightening since mid-2023, following recent strong US inflation data. Markets are pricing in approximately an 85% to 92% chance of a US rate hike this week, significantly up from about 67% prior to last week’s inflation data. The swaps market is also implying 50 basis points of cumulative tightening by year-end. National Australia Bank (NAB) expects the Fed to deliver 50 basis points of rate increases over coming meetings, abandoning its previous forecast for rates to remain on hold, with a quarter-point hike this week and a second in the fourth quarter, adding that total tightening could reach 75 basis points if pressures persist. The Bank of Japan is also widely expected to raise rates this Friday amid persistent inflation and resilient economic growth. Higher interest rates typically reduce the appeal of non-yielding assets like gold, which posted a third consecutive weekly decline on Friday.
Prominent AI company leaders, including OpenAI CEO Sam Altman and Anthropic CEO Dario Amodei, have publicly called for a slowdown in AI development due to safety risks and concerns over “recursive self-improvement.” This call for caution, publicly supported by OpenAI’s Sam Altman and xAI’s Elon Musk, led to a significant sell-off in technology and chipmaker stocks across Asia. OpenAI CEO Sam Altman also stated that an IPO for the ChatGPT maker would be “ill-advised” this year.
Stocks to Watch
The tech sector experienced a sharp downturn following the AI development concerns. Tokyo-listed tech investment titan SoftBank (9984.T) plunged -10.72% to close at 5,839.00. South Korean chipmaker SK Hynix (000660.KS) closed sharply lower, down -6.35% at 1,697,000.00, while tech giant Samsung (005930.KS) was also sharply lower, closing down -4.05% at 249,000.00. These declines were directly attributed to the calls from AI leaders for a slowdown in development.