Market Overview
Global markets are experiencing a significant “risk-off” sentiment, primarily driven by a sharp sell-off in the technology sector on Wall Street. Concerns about the immense capital expenditure and financing sustainability of artificial intelligence (AI) infrastructure, coupled with escalating geopolitical tensions in the Middle East, are fueling this apprehension. The latter has pushed crude oil prices to multi-month highs, reigniting inflation worries. Investors have sought refuge in government bonds, leading to a decline in US Treasury yields. European equities opened lower today, reflecting this prevailing global risk aversion, while Asian markets displayed mixed performance at their close.
Markets
In European trading, major indices opened lower. London’s FTSE 100 was down 0.57% to 10,663.38 as of approximately 10:40 am London time, while Germany’s DAX fell 0.87% to 25,150.77 as of approximately 11:40 am Frankfurt time.
Asia-Pacific equities concluded their trading day with mixed results. Australia’s S&P/ASX 200 closed largely flat, up a marginal 0.02% at 8,795.20. Japan’s Nikkei 225 declined 0.34% to 62,693.16, marking its second consecutive weekly loss. South Korea’s KOSPI, however, managed a slight gain of 0.30% to 5,550.30, while China’s Shanghai Composite rose 0.89% to 3,690.48.
In currency markets, the Japanese Yen strengthened against the US Dollar, with the Dollar-Yen pair closing down 0.96% at 156.6210, driven by demand for haven assets.
Commodity prices saw varied moves. Brent Crude settled -3.01% lower at $109.76 a barrel, despite earlier reports of surging past $US112-$114 a barrel and hitting a five-month high overnight due to geopolitical tensions. WTI Crude, however, advanced 1.62% to $101.08. Gold, a traditional safe-haven asset, closed down 0.58% at $4,037.00.
US Treasury yields for the previous session reflected strong safe-haven demand. The benchmark 10-year US Treasury yield fell by -19.30 basis points to 4.953%, its largest daily decline since March 2023. The 30-year Treasury yield also dropped by -15.20 basis points to 5.287%.
What Drove Markets
The predominant market theme was a tech sell-off in the previous US session, triggered by deepening concerns over the colossal capital expenditure required for AI infrastructure and its financing sustainability. The technology-heavy Nasdaq fell 2.60% and the S&P 500 shed 1.2%. Meta Platforms shares, for instance, lost 7% following its announced plan for approximately $US825 billion ($1.2 trillion) in capital expenditure over the coming years. Nvidia CEO Jensen Huang noted a “scarcity of capital” in the AI buildout, while Ed Yardeni, president of Yardeni Research, described the AI trade as a “bubble” undergoing “depressurization.” This impact was broadly felt across semiconductor stocks, with the Philadelphia Semiconductor Index dropping 6.7%, its biggest daily decline since June 23.
Geopolitical risks in the Middle East significantly impacted energy markets. Houthi drone strikes, damaging Saudi energy infrastructure, and reports of potential US/Israel attacks on Iran contributed to crude oil prices surging to a five-month high overnight, although Brent crude later closed lower. This rise in energy costs intensifies global inflationary pressures, posing a challenge for central bank policies.
In central bank developments, Japan’s key consumer price index, excluding fresh food, rose 2.1% in September from a year earlier, surpassing the Bank of Japan’s 2% target for the first time this year. This data reinforces expectations for a widely anticipated BoJ interest rate rise in December. Higher energy prices are also expected to complicate the inflation outlook for the Federal Reserve’s upcoming policy decision next week.
Despite a flat close for Australia’s S&P/ASX 200, significant sector divergence was observed. The consumer discretionary sector gained 2.57%, and financials rose 2.21%. In contrast, the materials sector fell 3.85%, impacted by declining prices for key metals such as copper, gold, silver, and lithium, which hit a five-week low in London overnight amid broader demand concerns tied to the tech sell-off.
Stocks to Watch
In the US tech sector from the previous session, Meta Platforms (META) fell -6.98% to $648.85, Nvidia (NVDA) declined -4.40% to $212.21, and Advanced Micro Devices (AMD) plunged -8.10% to $507.93. Alphabet (GOOGL) shares also decreased -3.15% to $324.22. AI-related infrastructure company CoreWeave (CRWV) dropped -10.06% to $55.60, highlighting concerns over financing costs. Tesla (TSLA) was down -3.08% to $374.58 after cutting its capital expenditure forecasts. Bucking the trend, Procter & Gamble (PG) gained 5.58% to $165.59 after reporting better-than-expected quarterly results, signaling a potential shift towards defensive sectors.
On the Australian exchange, Wesfarmers (WES.AX) gained 3.76% to $80.29 and Commonwealth Bank of Australia (CBA.AX) rose 4.35% to $164.00, contributing to the gains in their respective sectors. Conversely, major miners BHP (BHP.AX) and Rio Tinto (RIO.AX) saw declines of -3.64% to $55.05 and -2.68% to $146.27, respectively, due to falling metal prices. Payments company Zip (Z1P.AX) plummeted 29.5% after reporting higher loss rates and a hit from a US fraud incident.
South Korean semiconductor stocks provided some support for the KOSPI, with SK hynix (000660.KS) advancing 4.42% to 1,277,000.00 KRW and Samsung Electronics (005930.KS) up 0.47% to 215,500.00 KRW. However, Hyundai Motor (005380.KS) fell -1.99% to 295,500.00 KRW, weighing on the broader index.