Asian stocks skid, Wall Street and bonds aided by oil slip

Asian share markets experienced a decline on Monday, driven by concerns over the extensive funding requirements of artificial intelligence (AI) technologies, as companies prepare for a week filled with earnings reports. This uncertainty was further exacerbated by political turmoil in France, which led to a drop in the euro. Oil prices experienced a decrease, providing some relief to bonds and Wall Street stock futures, mitigating the overall losses in Asia.

Despite the initial setback, Brent and US crude futures managed to recover slightly, falling by 1.6% and 0.7% respectively, to $108.06 and $100.70 a barrel, respectively.

Iran's report of another tanker striking a mine in the Strait of Hormuz added to the geopolitical tensions, further bolstering the bond rally. Ten-year Treasury yields decreased by 3 basis points, settling at 5.0645%, following their largest weekly decline in over eight months. This bond rally was accompanied by a surge in S&P 500 futures, with gains of 0.5%, and Nasdaq futures, which increased by 0.8%.

However, Asia's market performance was adversely affected by the tech sector's slump, particularly in Japan, where the Nikkei fell 2.0%, following a 5.4% decrease the previous week.

My Bui, an economist at AMP, highlighted investors' skepticism about AI's ability to generate sufficient revenues to offset the heavy upfront investment costs. Additionally, rising government bond yields and widening corporate credit spreads are making it increasingly challenging for companies to secure financing and maintain their AI infrastructure development.

The Semiconductor Index suffered its longest losing streak since 2008, declining by 11.4%. Investors are eagerly awaiting earnings reports from Meta, semiconductor firms such as Lam Research and Texas Instruments, and Elon Musk-led companies SpaceX and Tesla, especially Meta, one of five AI hyperscalers expected to increase their capital spending by approximately $1.2 trillion in the upcoming year.

Other companies scheduled to report, including Netflix, Procter & Gamble, General Motors, and GE Aerospace, are anticipated to deliver overall earnings growth of around 30%, despite the challenges faced by the tech industry. In commodity markets, gold prices benefited from falling yields and rose by 0.4%, reaching $4,181 an ounce.