Asian markets sell off as AI trades crumble after hot US CPI data

Asian markets experienced a decline on Thursday following a surge in US consumer price inflation, which raised expectations of interest rate hikes from the Federal Reserve. The MSCI’s Asia-Pacific index outside Japan dropped by 1.2%, while the Nikkei 225 fell by 1.3%. The S&P 500 e-mini futures also decreased by 0.3%. Chris Weston, head of research at Pepperstone Group Ltd, noted that Asia faced another challenging day, with renewed technology weakness impacting the KOSPI and Nikkei futures, and highlighting the risk associated with leveraged ETFs and AI infrastructure credit.

On Wall Street, stocks had declined for three consecutive days after September's consumer price inflation exceeded expectations. The S&P 500 fell by 1.1%, the Nasdaq Composite dropped by 1.9%, and a gauge of semiconductor stocks endured its sixth day of losses due to higher borrowing costs dampening shares of AI-related companies like Oracle and CoreWeave.

JPMorgan analysts attributed the market's decline to the tech sector, specifically citing AI challenges, financing risks, and IPO timelines. The US consumer price index data increased the likelihood of interest rate hikes by the Federal Reserve, with Fed funds futures projecting a 31.6% probability of a 25-basis-point hike at the upcoming meeting on October 28, up from 22.1% the previous day.

The yield on the US 10-year Treasury bond fell by 4.4 basis points to 5.144%. In contrast, the US dollar weakened against the yen by 0.2% to 157.925 yen, while the euro increased by 0.3% to $1.1194. The Australian dollar fell by 0.2% to $0.6956 after September employment data showed an unexpected decline of 39,300 jobs, falling short of expectations for a 20,000 increase.

Market focus shifted towards speeches from Federal Reserve officials in Bangkok, including Chair Kevin Warsh, for insights into the central bank's future actions, as well as upcoming US producer prices and retail sales data. TSMC, the AI chip giant, was set to release its third-quarter earnings later in the Asian trading session.