Market Overview
US equities closed a volatile session with significant gains as a bond market rally and an easing selloff in artificial intelligence (AI) related stocks provided support. This rebound occurred despite the release of hotter-than-expected US producer inflation data. The Dow Jones Industrial Average posted a notable advance, while the Nasdaq Composite turned positive, signaling a rotation out of previously concentrated AI positions. Australian shares are anticipated to open higher, tracking gains on Wall Street, although concerns about the AI sector and geopolitical tensions in the Middle East continue to draw investor attention.
Markets
The Dow Jones Industrial Average (^DJI) advanced 1.08% to 52,177.69. The S&P 500 (^GSPC) gained 0.33% to 7,744.06, and the tech-heavy Nasdaq Composite (^IXIC) closed up 0.08% at 26,713.03, recovering from session lows.
In the bond market, the benchmark US 10-Year Treasury yield (^TNX) slumped 10.10 basis points (bp) to 5.089%, with the US 2-Year Treasury yield also down 4.7 bp to 4.755%. This bond rally provided crucial market support. The US Dollar Index (DX-Y.NYB) retreated 0.54% to 102.00, pulling back from an 18-month peak. The Australian dollar (AUDUSD=X) softened 0.89% to 0.6923.
Commodity markets saw mixed performance. Brent Crude (BZ=F) was marginally lower by 0.21% at $105.84, while WTI Crude (CL=F) advanced 1.20% to $96.23. Gold (GC=F) saw notable gains, rising 2.02% to $4,190.90 amid broader market volatility. Iron ore prices declined 0.6% to $US89.95 a tonne.
Looking ahead, ASX 200 futures were up 74 points, or 0.8%, to 8826, indicating a positive open for Australian shares.
What Drove Markets
Markets reacted to a combination of inflation data, evolving dynamics in the AI sector, and ongoing geopolitical risks.
Inflation Concerns and Bond Rally: US producer prices surged in September, rising 1.3% month-over-month, the fastest pace in over four years, and 6.3% year-over-year, the largest gain since December 2022. Higher energy costs were a significant contributor, accounting for over 80% of the 2.6% month-over-month rise in prices for final demand goods. This data followed similarly hot consumer price index (CPI) figures from the previous day. Initially, these inflation reports led to an increase in the odds of a quarter-point Federal Reserve rate hike later this month, reaching nearly 34%. However, a significant rally in US Treasuries subsequently saw these odds fall back to around 27%, as government debt regained safe-haven status and offset initial inflation worries.
AI Sector Volatility and Chipmaker Shifts: The artificial intelligence trade experienced continued volatility, with an initial selloff easing towards the end of the US session. Concerns centered on companies overspending on AI infrastructure, rising credit risk for cloud providers like CoreWeave, a potential memory chip glut fueled by increasing competition from China, and reports of slowing revenue growth for AI giants such as Anthropic. Anthropic’s Q3 revenue reportedly grew 45% to $16.8 billion, though some traders expressed concern that the top line might not be growing fast enough. These factors led to declines in several memory chipmakers and AI-related stocks, significantly impacting Asian markets, with South Korea’s KOSPI crashing over 7% earlier on Thursday, driven by sharp declines in memory chipmakers like SK Hynix. The selloff eased after NVIDIA CEO Jensen Huang expressed confidence in CoreWeave, stating the cloud provider was improving daily and did not require a backstop from Nvidia.
Geopolitical Risks and Oil Supply: Oil prices displayed mixed movements as global supply risks, particularly from the Middle East, remained prominent due to attacks on commercial vessels in the Strait of Hormuz. US military plans for new strikes on Iran, potentially involving the MOAB, and Iran’s statement of “counting the moments” until it could strike US warships further underscored these tensions. These concerns were balanced by reports that the US is considering easing sanctions on “shadow fleet” vessels to help reduce petroleum shipping costs and global oil prices, as well as the International Energy Agency’s (IEA) planned release of 100 million outstanding oil barrels. Weekly US crude oil inventories also showed a larger-than-expected decline, with an 8-million-barrel US inventory draw in the week ended October 9th, supporting WTI prices.
Stocks to Watch
NVIDIA (NVDA) closed down 1.84% at 217.23, central to the AI trade narrative. Its CEO’s comments regarding CoreWeave helped ease the broader AI selloff. CoreWeave (CRWV), the cloud provider at the center of credit risk concerns, rebounded 5.94% to 69.69 after Nvidia CEO Jensen Huang expressed confidence in the company’s financial position, stating it was improving daily and did not require a backstop. CoreWeave’s credit risk had earlier ballooned to an all-time high, and its corporate bond yields surged before paring losses.
Key memory chipmaker Micron Technology (MU) rebounded 1.87% to 931.24 from earlier losses after being caught in the broader chip sector rout. Conversely, South Korean chipmakers continued to decline, with SK Hynix (000660.KS) down 11.06% to 1,262,000.00 and Samsung Electronics (005930.KS) slumping 9.48% to 210,000.00, amid concerns about a potential memory chip glut and increasing competition from China. Seagate Technology (STX) fell 3.19% to 690.81 and Western Digital (WDC) dropped 2.10% to 356.45, adding to declines this week amid worries around AI sector overspending.
Despite broader chip sector concerns, Taiwan Semiconductor Manufacturing (TSMC) (2330.TW) declined 2.01% to 2,440.00 but reported record profit for Q3, indicating robust demand for AI infrastructure. Large hyperscalers Microsoft (MSFT) and Oracle (ORCL) closed higher, gaining 1.08% to 539.44 and 3.00% to 134.47, respectively, contributing to broader market gains as performance broadened beyond concentrated tech stocks. Tesla (TSLA) saw a 1.29% decline to 362.44, amidst CEO Elon Musk’s comments on China’s future RAM production and ongoing discussions about a potential merger with SpaceX.