Asia shares bend under AI stress; Apple earnings loom

Asian stock markets dipped on Monday as concerns grew over the durability of the AI investment surge in the tech sector, while the high cost of oil reduced the appeal of safe-haven bonds. Worries about negative cash flow and the vast scale of AI capital expenditure drove up the price of insuring against corporate defaults last week, with gold hitting a one-year low as stressed investors sold assets to meet margin calls.

The U.S. midterm elections could introduce additional political barriers for data centers, exacerbating the market's unease. The departure of traders from Binance, the world's largest cryptocurrency exchange, added to the market's apprehension after hackers stole billions from the platform last week.

Analysts at Goldman Sachs predict that capital expenditure by hyperscalers will nearly double to $800 billion this year, with further growth to $1.2 trillion by 2027. Meanwhile, they forecast S&P 500 earnings per share (EPS) growth of nearly 30% in 2026, slowing to 18% the following year. Goldman's chief US equity strategist, Ben Snider, notes that while AI investment spending will likely continue to rise, the growth rate of AI capital expenditure may be peaking.

Japan's Nikkei fell 0.5%, South Korea dropped 0.8%, having declined 16% the previous month, while MSCI's broad Asia-Pacific index outside Japan fell 0.4%. On Wall Street, S&P 500 futures rose 0.4%, and Nasdaq futures increased 0.6%. The tech-heavy Nasdaq suffered a 7% loss in October, its worst monthly performance since April 2025, while tech stocks experienced a significant downturn in October.

On the interest rate front, futures suggest a 72% chance of a quarter-point Federal Reserve rate hike, with only 55 basis points of total tightening priced in, down from over 70 basis points a month ago. Treasury yields have risen to 4.952% for the 10-year note, but remain far from their October peak of 5.3645%. Markets anticipate interest rate hikes from the Reserve Bank of Australia, Bank of England, and Riksbank, while the Norges Bank is expected to maintain its stance.

Economic reports due this week include the US ISM manufacturing survey for October and the crucial jobs report on Friday, with median forecasts anticipating a 65,000 increase in jobs, following a disappointing 29,000 rise in September, and a steady unemployment rate of 4.2%.