Global Stocks Fall on AI Rethink, Yen Strengthens: Markets Mixed

(Bloomberg) — Stocks in Asia were set to fall as investors began to pull back from the artificial intelligence frenzy that has driven this year’s bull market.

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Stock futures in Japan, Australia and Hong Kong fell. The Nasdaq Golden Dragon China index, a gauge of U.S.-listed Chinese stocks, fell 1.9%. In the US, the S&P 500 fell 2.3%, its worst performance since December 2022 and ending the best period without a 2% drop since the start of the global financial crisis.

The tech-heavy Nasdaq 100 fell 3.7%, weighed down by its largest constituents. fell 5% after investing more resources in its effort to outperform rivals in AI, with spending higher than analysts had expected. Tesla Inc.’s profit loss and Robotaxi delay sent the stock down 12%. Nvidia Corp fell 6.8%.

“Investors are finally waking up to all the AI ​​spending and realizing that it is currently much more of an expense than a revenue generator,” said Peter Boockvar of The Boock Report.

The yen extended gains on Thursday after rising more than 1% to its strongest levels against the greenback since May, in an advance that reflected a reduction in carry trades.

The move is “potentially compressing yen short positions, given that yen-funded carry trading has been a popular strategy in recent years,” Charu Chanana, head of FX strategy at Saxo Capital Markets, wrote in a note.

In the bond market, the Treasury curve steepened Wednesday on bets that the Federal Reserve is close to cutting rates. The policy-sensitive two-year yield fell six basis points, while the 10-year yield rose three basis points.

Former New York Fed President William Dudley has called for lower borrowing costs – ideally at next week’s meeting. For many analysts, such a measure would be worrying, as it would indicate that authorities are rushing to avoid a recession. Still on Thursday, in the US, investors will see more evidence of the health of the economy with the release of US GDP and initial unemployment benefit claims data.

An index of dollar strength was little changed on Wednesday. The Canadian dollar fell as the Bank of Canada cut rates for the second meeting in a row and signaled that more easing was to come. In the Philippines, the country’s central bank suspended currency trading for a second day due to Typhoon Gaemi.

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Elsewhere in Asia, data set for release includes South Korea’s gross domestic product, Japan’s services producer prices for June and Hong Kong’s trade for June. However, Singapore’s central bank will likely maintain restrictive monetary policy settings.

Big technological setback

After driving stocks higher for most of 2024, big tech has hit a wall. Traders have moved from megacaps to lagging parts of the market, spurred by bets on Fed rate cuts and concerns that AI has yet to bear fruit.

“The problem with technology is not only that profits are less than perfect, but the group is still stuck in the violent rotation trade that started with the June CPI,” said Adam Crisafulli of Vital Knowledge. “Many assumed the anti-technology rotation would be short-lived and the fact that it is proving durable is increasing anxiety about the group and spurring additional selling pressure.”

The defeat in these actions caused some of the air to go out of the evaluations. While this is something that could argue in favor of markdown purchases, earnings season is just beginning. Apple Inc., Microsoft Corp., Amazon.com Inc. and Meta Platforms Inc. are expected to report results next week.

Both the benchmark Nasdaq 100 index and the S&P 500 have surpassed thresholds that trigger a sell signal for commodity trading advisors, or CTAs, according to models from Goldman Sachs Group Inc.’s trading desk.

If stocks continue to fall, these rules-based traders could liquidate $32.9 billion in global equities, with $7.9 billion flowing out of the U.S. market, according to an analysis by the trading desk. bank operations. Even if the market reverses its decline, CTAs are still prepared to sell $902 million worth of US stocks.

In commodities, oil rose, recovering from a series of losses, after a government report showed that US crude stocks fell to their lowest level since February. Gold remained stable on Thursday morning after falling 0.5% in the previous session.

Main events this week:

• IFO business climate in Germany, Thursday

• US GDP, initial unemployment claims, durable goods, Thursday

• US Personal Income, PCE, Consumer Sentiment, Friday

Some of the main movements in the markets:

Actions

• S&P 500 futures were up 0.2% at 7:29 a.m. Tokyo time

• Hang Seng futures fell 0.6%

• S&P/ASX 200 futures fell 0.9%

Coins

• The Bloomberg Dollar Spot index was little changed

• The euro was little changed at $1.0842

• The Japanese yen was little changed at 153.74 per dollar

• The offshore yuan was little changed at 7.2660 per dollar

• The Australian dollar was unchanged at $0.6581

Cryptocurrencies

• Bitcoin fell 0.7% to $65,559.1

• Ether little changed at $3,375.16

goods

This story was produced with help from Bloomberg Automation.

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