Asian shares bend under AI stress

Asian equities wavered on Monday as apprehensions grew about the viability of the AI investment surge impacting the technology sector. The tech-heavy Nikkei in Japan declined 0.5%, while South Korea's Kospi sank 0.8%, following a 16% monthly loss. Growing concerns over negative cash flow and excessive AI capital expenditures contributed to a surge in the cost of insuring against corporate defaults last week, and gold slipped to a one-year low amid fears investors were liquidating to meet margin calls.

The mid-term U.S. elections could introduce further political obstacles for data centers, exacerbating market unease. Recent withdrawals from Binance, the world's largest cryptocurrency exchange, added to the worries after hackers robbed billions from the platform last week. Investors are eagerly awaiting earnings reports from Apple, AMD, Palantir, and Intel, the latter reporting a 29% drop on Friday.

Goldman Sachs analysts predict hyperscaler capital expenditures to nearly double to $800 billion this year, with further growth to $1.2 trillion in 2027. However, they foresee S&P 500 EPS growth peaking at nearly 30% in 2026, tapering to 18% the following year. Goldman's chief US equity strategist, Ben Snider, noted that AI investment spending will continue to rise but that the growth rate of AI capex is peaking.

Asian markets, including Japan's Nikkei, South Korea's Kospi, and MSCI's Asia-Pacific index outside Japan, slipped by 0.5%, 0.8%, and 0.4% respectively. On Wall Street, S&P 500 and Nasdaq futures edged up 0.4% and 0.6% respectively, providing a brief respite to safe-haven bonds. The US Federal Reserve may yet hike interest rates in December, but the probability has dropped from 72% to 55 basis points.

Economic data, including the US ISM manufacturing survey and Friday's payrolls report, will be closely watched, with median forecasts predicting a 65,000 increase in jobs and the unemployment rate remaining at 4.2%. Commodity prices, particularly oil, declined as talks between Iranian and Qatari officials aimed to resolve the US-Israeli conflict continued.

Brent and US crude futures saw a 1.5% and 1.7% drop to $111.72 and $102.37 per barrel respectively. Gold, however, bounced 0.6% to $3,898 an ounce.