US Futures, Korean Stocks Drop as AI Mania Fades: Markets Wrap
(Bloomberg) — US equity-index futures declined along with Asian stocks as enthusiasm for the artificial-intelligence trade cooled after driving markets to record highs this year.
Futures contracts for the Nasdaq 100 Index dropped 1.1%, indicating a third day of losses for the gauge as investors rotated out of tech stocks. MSCI’s Asian equities gauge fell 1.5%. South Korea’s Kospi — the world’s best-performing gauge this year and a bellwether for AI investments — slid 5%, with chipmaker SK Hynix Inc. tumbling 8%.
Currencies were a focus in Asia with the Korean won extending its drop to a new 2009 low. The Indonesian rupiah traded near its record low against the dollar as foreign investors pulled billions of dollars from the country’s bonds and stocks fell.
Stocks are pulling back from record highs as Broadcom Inc.’s outlook for AI-chip sales fell short of elevated expectations, pausing a blistering advance in semiconductor shares from their war-driven lows. Investors now face a crucial test on Friday with the US jobs report, which could reshape expectations for Federal Reserve policy and determine whether the AI-fueled rally extends further or loses momentum.
“Some consolidation was probably way overdue given the unprecedented pace and strength of the recent AI rally,” said Vey-Sern Ling, managing director at Union Bancaire Privee. “The Broadcom ‘miss’ gave a good excuse for investors sitting on large profits to cash in. It’s healthy and doesn’t derail the longer-term story.”
In other corners of the market, Brent edged up to near $96 a barrel, recovering some of the losses triggered by optimism that a ceasefire between Israel and Lebanon could pave the way for a broader diplomatic breakthrough between the US and Iran.
Gold dropped as uncertainty persisted over progress in US-Iran talks to end the war that’s roiled global markets. The yellow metal traded near $4,440 an ounce.
The market focus, however, remained on semiconductor stocks.
Broadcom shares slid the most in more than 16 months Thursday after delivering a disappointing forecast for AI chip revenue. While the company had been making progress in pivoting to AI customers, it has come up against outsized investor expectations.
Sentiment toward the chip sector remained weak with the Philadelphia Semiconductor Index dropping 2.1%. A Bloomberg gauge of semiconductors in Asia Pacific declined 3.4%.
Concerns about an AI bubble have also resurfaced, with billionaire investor Ray Dalio warning earlier this week that the market is exhibiting characteristics of a boom that will eventually unravel.
“Tech sectors are coming under pressure as the AI bubble fears resurface after Broadcom’s results,” said Nick Twidale, chief market analyst at AT Global Markets. “The NFP data today will amplify a late risk run and it makes sense for some profit taking.”
What Bloomberg’s Strategists Say…
The slump in South Korean shares is weighing down the global risk mood as the flipside of the Kospi’s impressive rise to prominence plays out. While the retreat in Seoul may have plenty of idiosyncratic drivers, that’s likely to be little help for investors elsewhere because South Korea’s sway over global markets surged this year along with the rally that briefly took it past India as the world’s sixth-largest bourse.
— Garfield Reynolds, Markets Live team leader. For more on the analysis, click here.
The key for traders on Friday will be the monthly US employment numbers. Treasury bond traders, having bought into the prediction that the Fed will raise interest rates during the next 12 months, stand to pay a heavy price if US employment data for May are weak.
The May data is slated to be released at 8:30 a.m. in Washington. It’s expected to show an 85,000 increase in nonfarm payrolls, a three-month low, and an unchanged 4.3% unemployment rate, the median estimates of economists in a Bloomberg poll show.
While the US-Iran conflict and AI continue to dominate the market narrative, Friday’s jobs report is very important for markets, said Tom Essaye of the Sevens Report.
“A ‘too tight’ labor market would risk increasing the chances of Fed rate hikes sooner than expected,” he said.
Corporate Highlights:
SpaceX set out its IPO pitch to retail investors early on Thursday with a video in which Chief Financial Officer Bret Johnsen joins the dots between the company’s rocket, satellite and AI businesses. Blackstone Inc. limited redemptions from its flagship private credit fund for the first time after investors sought to pull 10% of the shares, the latest firm to cap withdrawals amid a continued investor exodus. S&P Dow Jones Indices will keep its existing eligibility requirements for main benchmarks like the S&P 500 Index, rejecting proposals that would have made it faster for mega-cap companies such as Elon Musk’s SpaceX to gain rapid entry into the benchmark after going public. Some of the main moves in markets:
Stocks
S&P 500 futures fell 0.6% as of 12:59 p.m. Tokyo time Japan’s Topix fell 0.1% Australia’s S&P/ASX 200 fell 0.7% Hong Kong’s Hang Seng fell 0.8% The Shanghai Composite rose 0.4% Euro Stoxx 50 futures fell 0.2% Currencies
The Bloomberg Dollar Spot Index was little changed The euro was little changed at $1.1615 The Japanese yen was little changed at 159.96 per dollar The offshore yuan was little changed at 6.7760 per dollar Cryptocurrencies
Bitcoin fell 1.5% to $62,642.2 Ether fell 2.6% to $1,727.23 Bonds
The yield on 10-year Treasuries was little changed at 4.47% Japan’s 10-year yield was unchanged at 2.660% Australia’s 10-year yield was little changed at 4.91% Commodities
West Texas Intermediate crude rose 0.1% to $93.16 a barrel Spot gold fell 0.7% to $4,442.06 an ounce This story was produced with the assistance of Bloomberg Automation.
–With assistance from Abhishek Vishnoi and Winnie Hsu.
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