(July 24): A global sell-off in technology stocks gained momentum as doubts over returns from billions of dollars spent on artificial intelligence (AI) were compounded by a surge in oil prices that rekindled inflation concerns.
MSCI’s Asia Pacific equities gauge fell 2.3%, following a sell-off on Wall Street that saw the S&P 500 Index drop the most in a month. Regional chip bellwethers Samsung Electronics Co and SK Hynix Inc — beneficiaries of the global AI buildout — both slumped more than 7%. Equity-index futures indicated further losses for the tech-heavy Nasdaq 100.
“Investors are already feeling increasingly jittery about the sustainability of the AI rally,” said Gerald Gan, chief investment officer at Reed Capital in Singapore. “That said, any short-term correction is likely to attract dip buyers once again. For now, the music has not stopped.”
Further weighing on sentiment, Brent traded around US$100 a barrel, having climbed over that level on Thursday after Houthi attacks on tankers in the Red Sea opened a new front in the Middle East conflict, while President Donald Trump threatened to extend US strikes on Iran. A 38% jump in the commodity this month has reignited concerns about inflation, prompting traders to price in prospects for higher interest rates.
Government bonds in Japan, Australia and New Zealand all declined, while the Treasury 10-year yield climbed one basis point to 4.70% after jumping four basis points Thursday. Gold extended its drop to about US$4,030 an ounce, as bets for higher interest rates made the yellow metal less appealing. Other precious metals also declined.
The jump in energy prices has compounded a tech-led market sell-off as investors grapple with doubts over returns from AI spending and the prospect of more persistent inflation. Higher oil prices have complicated the Federal Reserve’s policy outlook ahead of its meeting next week, with money markets now fully pricing in a rate increase by September.
“Escalating Middle East tensions have pushed crude prices higher, raising concerns that inflation could re-accelerate and delay interest-rate relief, maybe even cause the Fed to hike,” said Sameer Samana at Wells Fargo Investment Institute. “We think oil prices eventually normalise, but appreciate that things may get worse before they get better.”
The market is also contending with a spate of attacks at the Caspian Pipeline Consortium terminal on Russia’s Black Sea coast, which exports most of Kazakhstan’s crude.
Oil inventories across the globe are depleted by months of conflict, raising the risk of a supply squeeze that threatens to weigh on the global economy if prices continue to climb.
“Until recently, investors had largely assumed that tensions in the Middle East would eventually subside,” said Yugo Tsuboi, chief strategist at Daiwa Securities. “But with crude oil climbing above US$90 a barrel, markets are beginning to recognise the situation warrants closer attention.”
In tariff-related news, the US will collect duties of between 10% and 12.5% on imports from most major trading partners, its biggest move yet to reconstruct Trump’s tariff wall that was pierced by the Supreme Court.
Elsewhere, the dollar edged lower, though it still headed for its biggest weekly gain in a month. The currency is strengthening on the back of higher oil prices and “safe-haven flows,” said Moh Siong Sim, a strategist at Oversea-Chinese Banking Corp.
“Next week’s FOMC meeting could also signal a Fed that is wary of inflation risks amid a backdrop of renewed oil price gains,” he said, referring to the Federal Open Market Committee. “Expectations of a more hawkish Fed have also supported the dollar.”
Still, the focus remains firmly on the AI trade. Alphabet Inc tumbled 7.1% Thursday after raising its capital-expenditure forecast, while Tesla Inc slid 15% as profits disappointed despite strong electric-vehicle deliveries.
Alongside Alphabet, Meta Platforms Inc, Microsoft Corp and Amazon.com Inc telegraphed in April they’d be spending as much as US$725 billion (RM2.97 trillion) this year on AI ambitions.
“In terms of AI investment, the entire thematic is intact,” Jun Bei Liu, co-founder of hedge fund Ten Cap Investment Management, said on Bloomberg Television. “The only thing is the valuation part. The extremely expensive parts of the AI trade are going to be under a little more pressure. It is going to have to be led by earnings itself.”
Corporate highlights:
- Intel Corp delivered a surprisingly strong revenue forecast for the current period, indicating that a surge in data centre spending is helping fuel the chipmaker’s turnaround.
- Advanced Micro Devices Inc announced a raft of new products for data centres that it said will outperform those from rival Nvidia Corp, aiming to make gains in a booming market for AI computing.
Some of the main moves in markets:
Stocks
- S&P 500 futures were little changed as of 1.05pm Tokyo time
- Nikkei 225 futures (OSE) fell 2.8%
- Japan’s Topix fell 1.2%
- Australia’s S&P/ASX 200 fell 0.9%
- Hong Kong’s Hang Seng fell 1.3%
- The Shanghai Composite fell 1.2%
- Euro Stoxx 50 futures were little changed
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro was little changed at US$1.1383
- The Japanese yen was little changed at 163.81 per dollar
- The offshore yuan was little changed at 6.7771 per dollar
Cryptocurrencies
- Bitcoin rose 0.5% to US$65,396.84
- Ether fell 0.3% to US$1,879.28
Bonds
- The yield on 10-year Treasuries advanced one basis point to 4.70%
- Japan’s 10-year yield advanced three basis points to 2.800%
- Australia’s 10-year yield advanced nine basis points to 5.08%
Commodities
- West Texas Intermediate crude fell 0.5% to US$91.71 a barrel
- Spot gold fell 0.5% to US$4,029.40 an ounce
