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

Asian share markets dipped on Monday (Oct 19) due to worries about artificial intelligence’s substantial funding requirements, which dampened investor confidence ahead of a week filled with earnings reports. The euro also weakened following protests in France. A decline in oil prices provided some relief to bonds and Wall Street stock futures, easing Asia's losses.

Oil prices fell following President Donald Trump's decision to waive certain sanctions on Russia, though he later stated a final decision had yet to be made. US Secretary of State Marco Rubio indicated that the president would take up to 60 days to evaluate the economic consequences of this action. Brent futures declined by 1.6 percent to $108.06 a barrel, while US crude futures fell by 0.7 percent to $100.70 a barrel.

Meanwhile, Iran announced that another tanker had struck a mine in the Strait of Hormuz. Geopolitical tensions, combined with safe haven flows from equities, fueled a rally in sovereign bonds, with 10-year Treasury yields dropping 3 basis points to 5.0645 percent, having just experienced their most significant weekly decline in over eight months.

Despite these setbacks, S&P 500 futures increased by 0.5 percent, and Nasdaq futures rose by 0.8 percent. Concerns about AI revenues proving insufficient to cover the substantial initial investment, as well as the potential need to write down AI infrastructure as it ages, have troubled investors. My Bui, an economist at AMP, explained that rising government bond yields and broader corporate credit spreads are intensifying financing costs, making borrowing, refinancing, and maintaining AI infrastructure development more challenging.

The PHLX Semiconductor Index plummeted by 11.4 percent last week, marking its longest losing streak since 2008. Investors are eagerly anticipating Meta's earnings report on Wednesday, along with those of semiconductor firms Lam Research and Texas Instruments, as well as SpaceX and Tesla, which are all part of Elon Musk's companies.

Meta is among five AI hyperscalers expected to boost their capital spending to around $1.2 trillion in 2027, according to Goldman Sachs. Other companies reporting earnings include Netflix, Procter & Gamble, General Motors, and GE Aerospace. Overall, earnings are projected to rise by 30 percent, driven by the significant profits generated by tech firms.

European stocks suffered from political uncertainty in France, with Eurostoxx 50 futures falling by 0.4 percent, while DAX futures slipped by 0.3 percent, and FTSE futures remained unchanged. These concerns also contributed to the euro slipping by 0.2 percent to $1.1212, closer to last week's 16-month low of $1.1113. In commodity markets, non-interest-bearing gold benefited from falling yields, climbing by 0.4 percent to $4,181 an ounce.