Stocks Fall as Fed Rate-Cut Bets Ease, Oil Jumps: Markets Wrap
(Bloomberg) — Asian stocks stumbled after four consecutive days of gains as uncertainty over Federal Reserve interest-rate cuts and stretched technology valuations weighed on sentiment.
The MSCI Asia Pacific Index dropped 1.3%, with tech firms such as SK Hynix Inc. leading declines, after comments from Fed officials damped expectations for a December rate cut. The pullback capped a week in which stocks had rallied on hopes that the end of the US government shutdown would revive key economic data releases. Global equities are heading for a fourth weekly rise in five. Chinese shares held their losses after weak economic data.
Brent crude jumped as much as 3% on mounting risks to Russian flows from Ukrainian military strikes and US sanctions. The pound slid against all Group-of-10 currencies, as the UK Chancellor Rachel Reeves considers dropping plans to raise the headline rates of income tax at the coming budget.
The moves dealt a fresh blow to risk sentiment, highlighted by heavy selling in high-flying tech giants amid mounting valuation concerns. Beneath the surface, some investors pointed to a rotation into more defensive sectors. With optimism over the US government’s reopening largely priced in, traders are now focusing on the upcoming wave of economic data, as the chances of a December Fed rate cut slip below 50%.
“Markets appear to be spooked to a large extent by AI froth fears,” said Vishnu Varathan, head of macro research for Asia ex-Japan at Mizuho Bank. “A Fed that is more likely to bide its time than race against it makes it a lot less conducive for the tech rout, which typically tends to be more sensitive to Fed easing.”
Elsewhere, US President Donald Trump is readying substantial tariff cuts designed to address high food prices and a series of new trade deals as he seeks to address voter concerns over the cost of goods. US equity-index futures were little changed, while contracts indicated European shares will have a modest drop.
A gauge of Asian technology stocks fell 2.5%, heading for its second straight weekly decline. South Korea’s Kospi — a poster child for the artificial intelligence boom — tumbled 3%.
Tech stocks have been under pressure recently as investors balanced optimism over technological advances with concerns over stretched artificial intelligence valuations. Wall Street chief executives have also adopted a more cautious tone recently, as the market’s gains since April’s slump have become increasingly concentrated in a handful of stocks, prompting some investors to warn of “froth” in the AI sector.
Investors will soon test those lofty valuations when Nvidia Corp., the world’s most valuable company at $4.5 trillion, reports earnings next week. The stock has jumped 39% this year, outpacing both the S&P 500 and the Nasdaq 100.
“There are plenty of other risks likely to shape markets through year-end, with Nvidia’s earnings the key bottom-up focal point next week,” Chris Weston, head of research at Pepperstone Group, wrote in a note to clients. That may prompt “traders to de-risk, lock in performance, and sit tight until the tape turns and risk appetite returns into year-end.”
With Trump signing the legislation to end the longest shutdown in US history, investor attention is now turning to the slew of economic data that’s due to flow out. Even so, the October jobs report will skip the unemployment rate as the household survey wasn’t conducted, US top economic adviser Kevin Hassett told Fox News.
Some traders are also concerned that the omission of key data may bolster arguments for Fed officials to stand pat. Currently, traders are pricing in about an even chance that the Fed will hold or cut rates in December.
Chair Jerome Powell said last month that a reduction is “not a foregone conclusion,” with the decision to be premised on incoming information.
In separate statements, Fed Bank of St. Louis President Alberto Musalem said officials should move cautiously on rates with inflation running above target, while Cleveland counterpart Beth Hammack noted policy should remain “somewhat restrictive.” Minneapolis Fed President Neel Kashkari said he didn’t support the last cut and is undecided about December.
In the commodities market, gold and silver traded higher, with both on course for substantial weekly gains, aided in part by expectations that the Fed may reduce rates again next month. Gold held close to $4,200 an ounce, up about 5% this week. Silver’s five-day advance was more than 10%.
Corporate News:
Verizon Communications Inc. is discussing plans to announce job cuts next week that could downsize the company by as much as 20%. Kioxia Holdings Corp. shares fell 23% after the NAND memory maker’s current-quarter outlook missed lofty expectations at a time investors globally are exiting highly valued tech stocks. Merck & Co. is closing in on a deal to acquire Cidara Therapeutics Inc., a biotech company developing a treatment for influenza, according to the Financial Times. Some of the main moves in markets:
Stocks
S&P 500 futures were little changed as of 1:31 p.m. Tokyo time Japan’s Topix fell 1% Australia’s S&P/ASX 200 fell 1.4% Hong Kong’s Hang Seng fell 1.3% The Shanghai Composite fell 0.2% Euro Stoxx 50 futures fell 0.3% Currencies
The Bloomberg Dollar Spot Index was little changed The euro was little changed at $1.1639 The Japanese yen was little changed at 154.54 per dollar The offshore yuan was little changed at 7.0937 per dollar Cryptocurrencies
Bitcoin was little changed at $98,756.11 Ether rose 0.9% to $3,206.52 Bonds
The yield on 10-year Treasuries was little changed at 4.12% Japan’s 10-year yield advanced one basis point to 1.700% Australia’s 10-year yield advanced two basis points to 4.44% Commodities
West Texas Intermediate crude rose 1.6% to $59.63 a barrel Spot gold rose 0.7% to $4,199.01 an ounce This story was produced with the assistance of Bloomberg Automation.
–With assistance from Winnie Hsu and Richard Henderson.
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