Asian Stocks Drop as Tech Valuations Weigh on Mood: Markets Wrap

(Bloomberg) — Asian equities fell at the end of a volatile week marked by conflicting views, as investors balanced optimism over technological advances with concerns over stretched artificial intelligence valuations.

The MSCI Asia Pacific Index dropped 1%, putting the gauge on track for its first drop in three weeks. SoftBank Group shares led declines in Japanese chip-related stocks. Earlier, US equity benchmarks dropped for the second time in three sessions with AI-related firms such as Nvidia Corp. tumbling, while a closely watched volatility gauge spiked. The MSCI All Country World Index is on track for its first weekly decline in four.

The losses may extend as US equity futures pared their gains after a report the US will block Nvidia’s sale of scaled-back AI chips to China. Tesla Inc. advanced 1.6% in extended trading after its shareholders approved a $1 trillion compensation package for Chief Executive Officer Elon Musk.

Investors who fueled the rally on expectations of Federal Reserve interest rate cuts and AI-driven growth are now questioning whether the massive capital spending will deliver returns. Wall Street chief executives have also struck a more cautious tone recently, as the market’s gains since April’s slump increasingly rely on a narrowing group of stocks.

“The market seems to have continued angst about the valuations of AI stocks,” said Jonestrading’s Dave Lutz, adding that semiconductor stocks were “under decent pressure.”

The pattern of selloffs followed by dip buying emerged as earnings season wound down and investors grew more reliant on private data amid a lack of official economic reports during the ongoing US government shutdown.

Investors have also been hit by conflicting views about the possibility of further rate cuts. While Thursday’s data release, from Challenger, Gray & Christmas Inc., showed companies announced 153,074 job cuts last month, a slew of comments from Fed officials about inflation left traders wondering whether a December rate reduction will materialize.

Fed Cleveland President Beth Hammack said inflation is a bigger risk than job weakness. Her Chicago counterpart Austan Goolsbee told CNBC that a lack of inflation data during the shutdown makes him uneasy about rate cuts.

Governor Michael Barr said officials still have work to do on inflation while ensuring the labor market is solid. Fed St. Louis President Alberto Musalem said the central bank must keep downward pressure on inflation, cautioning that interest rates are approaching the level that would no longer provide that pressure.

Last week, Chair Jerome Powell warned that a rate cut in December isn’t a foregone conclusion. Investors are still pricing about a 70% chance of a rate cut.

What Bloomberg strategists say…

There’s also the clear and growing danger that the longest American government shutdown on record will do significant damage to the world’s largest economy. That’s an issue that’s become sharply into view with the Trump government’s order for airlines to reduce capacity, set to spark substantial disruptions for passengers on Friday.

— Garfield Reynolds, MLIV Team Leader. For full analysis, click here.

Treasuries edged lower in Asian trading after 10-year yields had their biggest drop in a month in the previous session.

Elsewhere, a Bloomberg gauge of the dollar was little changed after sliding the most since mid-October. In commodities, oil edged higher Friday but was set for a second weekly drop, as supply increases around the world heighten concerns about the size of a forming glut. Gold edged up to once again trade above the $4,000-an-ounce level.

Back to stocks, the sudden focus on the financing needs of OpenAI — the maker of ChatGPT — and other companies in the industry came as investors were already on edge following remarks from Wall Street executives about frothy tech valuations.

Their warning fueled jitters in the market earlier in the week, leading to a 2.1% drop in the tech-heavy Nasdaq 100 Index on Tuesday. After recouping some of that loss on Wednesday, the index slid another 1.9% on Thursday. It’s now down almost 4% from its last record on Oct. 29, though still up nearly 20% so far this year.

Corporate Highlights:

Novo Nordisk A/S has again increased its offer for Metsera Inc. as its takeover battle with Pfizer Inc. for the obesity startup escalates. Airbnb Inc. issued a better-than-expected outlook for the holiday quarter, citing strong demand as US travelers used its recently launched “reserve now, pay later” feature to book trips in advance. Qantas Airways Ltd. shares fell after the airline scaled back planned capacity growth after slower-than-expected corporate demand, in one of the first signs of softening appetite for travel in Australia since the pandemic. Macquarie Group Ltd. shares tumbled after profit missed expectations as tepid activity at its key commodities and global markets division overshadowed a rebound in investment banking. Recruit Holdings Co. gained the most since its 2014 listing, after it reported stronger-than-expected earnings and raised its forecast on robust growth in human resources technology business. Some of the main moves in markets:

Stocks

S&P 500 futures were little changed as of 11:52 a.m. Tokyo time Nikkei 225 futures (OSE) fell 1.9% Japan’s Topix fell 1.2% Australia’s S&P/ASX 200 fell 0.4% Hong Kong’s Hang Seng fell 0.7% The Shanghai Composite was little changed Euro Stoxx 50 futures fell 0.1% Currencies

The Bloomberg Dollar Spot Index was little changed The euro was little changed at $1.1540 The Japanese yen was little changed at 153.15 per dollar The offshore yuan was little changed at 7.1251 per dollar The Australian dollar was little changed at $0.6474 Cryptocurrencies

Bitcoin rose 0.6% to $101,692.17 Ether rose 0.4% to $3,336.9 Bonds

The yield on 10-year Treasuries was little changed at 4.09% Japan’s 10-year yield was little changed at 1.675% Australia’s 10-year yield declined three basis points to 4.34% Commodities

West Texas Intermediate crude rose 0.6% to $59.78 a barrel Spot gold rose 0.5% to $3,996.29 an ounce This story was produced with the assistance of Bloomberg Automation.

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