Asian stocks slip, Wall St and bonds benefit from oil dip

Asian stock markets experienced a decline on Monday, October 19, due to concerns over the significant funding requirements for artificial intelligence (AI). Chinese economic data exceeded expectations, providing some optimism for global growth. A decrease in oil prices offered some relief to bonds and Wall Street stock futures, mitigating the extent of Asia's losses.

The dip in oil prices followed President Donald Trump's decision to waive some sanctions on Russia, although he later indicated that a final decision on the matter had not been made. US Secretary of State Marco Rubio stated that the president would take up to 60 days to evaluate the economic impact of these sanctions. Brent futures experienced a 1.8% decrease, falling to $107.83 per barrel, while US crude futures dropped 1.2% to $100.20 per barrel.

Meanwhile, Iran reported another tanker being hit by a mine in the Strait of Hormuz, driving up the cost of shipping and insurance, which kept oil prices for actual delivery higher than the market price. Geopolitical tensions and the flow of safe-haven investments into sovereign bonds contributed to the rally, with 10-year Treasury yields decreasing by 4 basis points to 5.0525%.

This decline marked the largest weekly fall in over eight months. S&P 500 futures increased by 0.8%, while Nasdaq futures rose by 1.3%. Asian markets were negatively impacted by concerns regarding AI technology and Japan's Nikkei, which fell 0.7%, following a 5.4% decline the previous week. South Korea gained 0.6%, after losing more than 14% the previous week, while Taiwan fell by 1.1%.

MSCI's broadest index of Asia-Pacific shares outside Japan decreased by 0.2%. Economists warn that AI revenues may not cover the substantial upfront investment, and AI infrastructure might need to be written down as it ages and depreciates. This could lead to a significant reduction in book value. Additionally, rising government bond yields and wider corporate credit spreads increase financing costs, making it challenging for companies to borrow, refinance, and maintain AI infrastructure development.

Chinese blue chips gained slightly, with an increase of 0.1% after data revealed the economy grew 4.5% in the third quarter, just exceeding forecasts. Retail sales also improved by 1.1%, and industrial output growth matched expectations at 5.5%. The Chinese yuan strengthened to its highest level in over two years at 6.6828. The PHLX Semiconductor Index declined by 11.4% last week, marking its longest losing streak since 2008.

Investors are keenly awaiting Meta's earnings announcement on Wednesday, as well as results from semiconductor companies Lam Research, Texas Instruments, and Tesla's Elon Musk-led firm. SpaceX's earnings are due on Tuesday. Meta is among five AI hyperscalers expected to boost capex to approximately $1.2 trillion in 2026, with the company estimating spending between $130 billion and $145 billion on capex in that year.

The results could have significant implications for investors. European stocks suffered from political instability in France, with EUROSTOXX 50 futures falling by 0.3%, DAX futures dropping by 0.2%, and FTSE futures easing by 0.1%. The euro weakened by 0.1% to $1.1232, nearing last week's 16-month low of $1.1113. The US dollar remained stable on the Japanese yen at 158.07 and has remained within a narrow range due to the threat of Japanese intervention, keeping speculators at bay.

In commodity markets, non-interest-bearing gold benefited from falling yields, increasing by 0.4% to $4,181 an ounce.