Asian markets plunged on
Monday as investors slammed the brakes on the red-hot AI rally,
while Israeli strikes on Beirut sent oil prices and the dollar
higher.
South Korea’s chip-heavy KOSPI took a heavy beating,
down more than 6.8% in volatile trade that earlier triggered a
20-minute halt. The benchmark is down about 14% from last week’s
record high.
Japan’s Nikkei fell 3.4% in early trade, though U.S.
S&P 500 and Nasdaq 100 futures were attempting a
bounce following a sharp selloff on Friday.
The Nasdaq had dropped 4.2% on Friday after a hot
jobs report ramped up expectations for Federal Reserve interest
rate hikes.
“The move looks more like a positioning and momentum unwind
than a reassessment of the long-term AI story,” said Marc Velan,
head of investments at Lucerne Asset Management in Singapore.
“Korean technology names have been among the strongest
performers globally and were heavily owned, so when rate
expectations shifted after the jobs report, they became a
natural source of liquidity.”
Two-year Treasury yields rose more than 11 basis
points on Friday and were up 1.6 bps on Monday to 4.1782%.
“The AI-drives-everything narrative frayed last week,” said
Bob Savage, head of markets macro strategy at BNY.
“Whether this is a healthy pause in the nine-week equity
rally or a top remains the key question. The IPO focus on SpaceX
and Anthropic is part of the pause – whether to make room for
the new market cap or to rethink value.”
INFLATION AND ECB AHEAD
The week ahead is headlined by the giant SpaceX listing,
expected to price on Thursday and trade on Friday, but will also
have inflation in focus with U.S. consumer price data due on
Wednesday and central bank meetings in Canada and Europe.
Last week, bitcoin notched its heaviest weekly drop
since the collapse of crypto exchange FTX in late 2022, falling
about 16%. It was hovering just shy of $63,000 on Monday.
SpaceX’s debut is expected to be followed by other mega IPOs
in the coming months from Anthropic and OpenAI, raising so much
money that brokers are nervous it could draw down other assets.
“The market regime has potentially shifted from moderate
inflation and rate cuts to potential ‘overheating’ contributing
to higher Treasury yields, a higher path of short-term interest
rates and tighter liquidity,” said Nick Ferres, CIO of Vantage
Point Asset Management in Singapore.
The Middle East situation also remains delicate, and Brent
crude futures were up about 2.6% to $95.45 a barrel on
Monday morning after an Israeli attack on Beirut prompted Iran
to direct a salvo of missiles at Israeli targets.
OPEC+ agreed on Sunday to the fourth increase in its oil
output targets in as many months.
In currency trade the dollar was firm and holding above 160
yen and pushed the Australian dollar to $0.7055.
The euro hovered at $1.1531.