The global stock selloff deepened in Asia on Thursday, after Wall Street logged its worst day since July as concerns over a potential Federal Reserve rate increase and the artificial-intelligence trade spread through markets.
The U.S.'s September core consumer-price index came in higher than expected on broad-based price pressures, potentially placing an October Fed rate hike back in the cards, said Capital Economics' James Reilly.
The market now appears to be pricing a 50-50 chance of a 25-basis-point rate increase in October, the senior markets economist said.
"For now, we still expect the Fed to wait until December to hike again," he said, noting that U.S. producer price index data could give a better sense of how the core personal consumption expenditures price index--the Fed's preferred inflation gauge--will fare.
The U.S. chip stock selloff gathered steam overnight thanks to inflation data, as investors who have become cautious about some AI companies due to the threat of Chinese competition and rising borrowing costs were spooked into selling part of their holdings. Both the tech-rich Nasdaq and S&P 500 logged their biggest one-day declines since July.
The losses spilled over into Asia, with South Korea's Kospi--heavily skewed toward chips thanks to Samsung Electronics and SK Hynix--down 7.8% in morning trade. Samsung was 9.4% lower, while Hynix plunged 11%. The Nikkei Stock Average in Japan dropped 4.4%, while China's Shanghai Composite Index shed 1.5%. Hong Kong's Hang Seng Index was 1.0% lower, while its tech gauge dropped 2.2%.
Government bond yields were largely lower amid the risk-off sentiment in equity markets. Buying is likely to dominate the Japan government bond market, said Mitsubishi UFJ Morgan Stanley Securities' fixed income strategists in commentary. Bond yields move inversely to prices.
JGB yields declined, with the 10-year yield down 6.7 basis points at 2.933%, LSEG data showed. The Australian 10-year bond's yield shed 8.6 basis points to 5.231%, while New Zealand's 10-year yield fell 5.0 basis points to 4.970%.
Regional currencies were mixed despite the potential for the Fed to raise rates. While the hotter CPI data revived Fed tightening fears, the U.S. dollar rally lacked punch as the retreat in Treasury yields after an initial jump softened the rates impulse, said OCBC Group Research strategists Sim Moh Siong and Christopher Wong in a note.
"AI-led equity weakness could further cap USD upside by challenging the capital flows into U.S. assets and wealth effects supporting resilient U.S. growth," they said. The U.S. dollar declined 0.4% to 157.73 yen, but was 0.9% higher at 1,350.00 won, according to LSEG data. The Australian dollar was 0.2% lower at US$0.6955.
Oil futures declined on possible position adjustments after rising overnight. Higher oil flows out of the Middle East in September likely eased pressures on inventory depletion, said Commonwealth Bank of Australia's Madison Cartwright. "However, it is unclear if the increase is sustainable," the senior geo-economics analyst said. "As long as the war is unresolved, risks of future disruption will persist."
Front-month West Texas Intermediate futures declined 1.0% to $94.18 a barrel, while front-month Brent was down 1.3% at $104.73 a barrel, ICE data showed.
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