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

Asian share markets declined on Monday due to concerns over AI's substantial funding requirements, impacting confidence prior to a week of earnings announcements. Chinese economic data exceeded expectations, offering a glimmer of hope for global growth. A decline in oil prices supported bonds and Wall Street stock futures, lessening Asia's losses.

Oil prices dropped following President Donald Trump's decision to waive some sanctions on Russia; however, he later indicated a final decision 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 this action. Brent futures fell by 1.7% to $107.95 per barrel, while US crude futures decreased by 0.8% to $100.62 per barrel.

The situation further escalated as Iran reported another tanker struck by a mine in the Strait of Hormuz, exacerbating geopolitical tensions and bolstering safe-haven bond flows. This led to a 4 basis point decline in 10-year Treasury yields to 5.0525%, marking their largest weekly drop in over eight months. Despite these setbacks, S&P 500 futures rose by 0.7% and Nasdaq futures increased by 1.0%.

Asian markets struggled with doubts about the tech sector and Japan's Nikkei lost 1.2%, following a 5.4% decline last week. South Korea fell by 0.4%, having slipped more than 14% last week, while Taiwan dropped 1.4%. MSCI's expansive Asia-Pacific index excluding Japan slipped by 0.6%. My Bui, an economist at AMP fund manager, noted that investors have long been apprehensive about AI revenues not being enough to cover the significant initial investments.

Additionally, AI infrastructure might need to be written down as it ages, resulting in substantial devaluation of book value. Rising government bond yields and expanded corporate credit spreads are increasing financing costs, making it harder for companies to borrow, refinance, and maintain AI infrastructure development. Chinese blue chips declined by 0.2%, but recovered from early losses as economic data indicated the economy expanded 4.5% in the third quarter, narrowly missing forecasts.

Retail sales increased by 1.1%, and industrial output growth matched expectations at 5.5%. The focus now lies on earnings reports, with Meta set to report on Wednesday, along with semiconductor firms Lam Research and Texas Instruments, and Elon Musk's companies SpaceX and Tesla. Meta is among five AI hyperscalers projected to elevate their capital spending to approximately $1.2 trillion in the coming year, according to Goldman Sachs.

Earnings are anticipated to grow by 30% overall due to the substantial profits achieved by tech companies. European stocks faced a setback due to political uncertainty in France, with EUROSTOXX 50 futures falling by 0.3%, DAX futures declining by 0.2%, and FTSE futures decreasing by 0.1%. These concerns contributed to the euro's depreciation by 0.1% to $1.1232, nearing the 16-month low of $1.1113.

The dollar slipped by 0.1% against the yen to 157.89 and has remained within a narrow range since the Japanese intervention threat kept speculative sellers away. In commodity markets, gold, which does not pay interest, benefited from falling yields and rose by 0.4% to $4,181 per ounce.