Asia shares subdued, bonds swamped by AI debt wave

Asian shares declined on Thursday as sovereign bond markets faced increased strain due to reports of major tech companies seeking billions in debt to purchase artificial intelligence (AI) chips. This competition for limited funding aggravated existing stresses in the markets. Oil prices rising further pressured Treasuries, although a successful US 10-year debt auction helped lower yields, which had reached 24-year peaks.

The euro slipped to near 17-month lows as concerns over France's financial health spread to Italian and Greek debt. This led to a decline in Japan's Nikkei and South Korea's stock indices, with the MSCI Asia-Pacific index (excluding Japan) falling 0.1%. On Wall Street, the S&P 500 and Nasdaq futures remained largely unchanged, while EUROSTOXX 50, DAX, and FTSE futures in Europe saw slight gains after a previous decline on Wednesday.

Media outlets reported that SpaceX, Broadcom, and Oracle were seeking funds to acquire AI chips, with Broadcom planning to raise $50 billion, SpaceX $30 billion, and $10 billion in loans to purchase chips from Nvidia. This news drove credit default insurance for SpaceX to record highs, and its shares and bonds lost value. Nigel Green, CEO of deVere Group, warned of a potential loop where Nvidia funded customers, putting global investors at risk if profits did not materialize.

Analysts at Goldman Sachs noted that, despite the Federal Reserve's anticipation of another rate hike by year-end, there remains an 80% probability of a December increase. They forecast a second Fed hike in December, but also express hope that further tightening may prove unnecessary. Meanwhile, 2-year Treasury yields remained at 4.78%, while 10-year yields nudged up to 5.298%, following a 24-year high of 5.326% overnight.

Strains in the French bond market prompted the Bank of France to acknowledge the country's economic situation as serious but reassure investors that assistance from the European Central Bank was not required. Investors reacted by dumping the euro, which fell to $1.1198, a 0.6% drop from the previous day. The dollar emerged as the primary beneficiary of the single currency's woes, reaching near an 18-month high at 102.22, while the Japanese yen remained protected by the threat of intervention.

In commodity markets, Brent futures increased by 0.9% to $101.14 per barrel, while US crude futures rose by 0.8% to $89.02 per barrel. Gold, which had suffered due to climbing yields, settled at $4,105 per ounce, nearing two-month lows.