Asia shares bend under AI stress; Apple earnings loom

Asian stock markets declined on Monday due to concerns about the sustainability of AI investments and the rising cost of corporate defaults. The high price of oil reduced the appeal of sovereign bonds as safe havens. Worries about negative cash flow and the massive scale of AI capex caused insurance costs against corporate defaults to surge last week, while gold hit a one-year low as stressed investors sold assets to meet margin calls.

Midterm elections in the United States could introduce additional political obstacles for data centers, exacerbating market uncertainty. Withdrawals from Binance, the world's largest cryptocurrency exchange, added to investor unease following a hack that stole billions from the platform.

Analysts at Goldman Sachs predict that hyperscalers' capex will nearly double to $800 billion this year and increase further to $1.2 trillion by 2027. However, they anticipate S&P 500 EPS growth to nearly 30% in 2026, slowing to 18% the following year. Goldman's chief US equity strategist, Ben Snider, noted in a note that while AI investment spending will likely continue to grow, the rate of AI capex growth may be peaking.

Japan's Nikkei fell 0.5%, and South Korea dropped 0.8%, following a 16% decline the previous month. MSCI's Asia-Pacific index outside Japan slipped 0.4%. In Europe, EUROSTOXX 50 futures rose 0.1%, while DAX futures remained unchanged. On Wall Street, S&P 500 futures edged up 0.4%, and Nasdaq futures increased 0.6%. The tech-heavy Nasdaq, however, lost almost 7% in October, marking its worst monthly performance since the tariff dispute in April 2025.

As equities retreated, safe-haven bonds experienced a brief respite. Yet, markets remain divided on whether a sustained decline in the stock market could discourage the Federal Reserve from raising interest rates in December. Only 55 basis points of total tightening are currently priced in, down from over 70 basis points a month ago. 10-year Treasury yields climbed to 4.952%, off their October peak of 5.3645%, while 2-year yields stood at 4.612%.

This week, several central banks, including the Reserve Bank of Australia, Bank of England, and Riksbank, are expected to raise interest rates. Meanwhile, the Norges Bank is anticipated to maintain its current stance. Key economic data includes the US ISM manufacturing survey for October, which will be released on Monday, followed by the crucial payrolls report on Friday. Economists forecast a 65,000 increase in jobs, up from the disappointing 29,000 gain in September, with the unemployment rate remaining steady at 4.2%.