Good morning, and welcome to our rolling coverage of business, the financial markets, and the world economy. A fresh wave of selling hit AI stocks around the world overnight, as investor grow increasingly anxious around the sustainability of AI-fuelled returns. The Japanese and South Korean stock markets, which have been buoyed up by their exposure to the AI investment boom, fell before recovering some ground to trade broadly flat on the day.
And over in the US, the blue chip S&P 500 fell by 1.2%, its worst performance since July, and the tech heavy Nasdaq dropped by 2.6%, its biggest drop since June. The Philadelphia semiconductor index fell by a painful 6.7%, also its worst day since June. Jim Reid, of Deutsche Bank, says our gloomy weather is reflected in the stock market: As storm Austen hits these shores this morning, clouds kept darkening for markets yesterday, as the wobbles of recent weeks all collided at once.
First, there was mounting stress around France, with the Franco-German 10yr spread (+14.8bps) seeing its biggest daily widening since the initial pandemic turmoil in March 2020. Second, AI fears continued to gather pace, with the Philly semiconductor index (-6.72%) falling to its lowest level since July, which dragged down equities more broadly. And third, the latest geopolitical fears meant oil prices kept rising as well, with Brent crude (+4.00%) hitting a 5-month high of $113.17/bbl.
So collectively, those concerns drove a huge risk-off move, with the 10yr Treasury yield (-16.6bps to 4.95%) seeing its biggest daily decline since August 2024. And in a further sign that investors are taking a decidedly more conservative approach – there has been a strong move towards US Treasuries, widely considered the best quality government debt in the market and a safe haven asset. Reid says: …In the midst of all these market pressures, an interesting theme was the flight to US Treasuries, which returned to its traditional risk-off role in periods of turmoil.
In fact, the 10yr yield fell -16.6bps to 4.95%. Moreover, that came despite some strong US data, demonstrating how the financial stress was weighing on sentiment rather than the fundamentals. For instance, the weekly initial jobless claims fell to a 3-month low of 194k in the week ending October 17 (vs. 200k expected).
And in turn, that pushed the smoother 4-week moving average to its lowest since September 2022, back when the unemployment rate was just 3.5%. Ipek Ozkardeskaya, an analyst at Swissquote, says that the falling value of some of the biggest tech and AI stocks in the world suggests that the bubble in the sector is bursting. Given the more than 50% retreat in memory chipmakers’ share prices from their peaks, we could now argue that their exponential rise was a bubble, and that the bubble has burst.
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