By Andre Janse van Vuuren and Olivia Levieux
A rebound in the artificial intelligence (AI) trade sputtered after the dismal debut of a South Korean data centre firm revived worries about whether the technology’s spending boom can last. Rising oil prices also weighed on sentiment.
S&P 500 futures fell 0.3 per cent as a poor reception for Elice Inc in Seoul sapped appetite for risky assets. The AI infrastructure provider plunged 32 per cent, suffering the country’s worst opening day for a sizeable company. Nasdaq 100 contracts were down 0.7 per cent. CoreWeave Inc dropped 4 per cent in premarket trading, while chipmakers resumed their downward slide.
Treasuries attracted fresh safe-haven bids despite climbing oil prices, with 10-year yields dropping three basis points to 5.11 per cent. Brent crude topped $111 a barrel for the first time since May as traders weighed the risk of further Iranian attacks in the Strait of Hormuz. The dollar fell.
Elice’s poor reception echoes the AI funding concerns brought to the fore by the abandoned initial public offering (IPO) of Australia’s Firmus Grid Ltd barely two weeks ago. Those worries are also evident in debt markets, with SoftBank Group Corp’s credit risk rising to its highest level in nearly four years on Tuesday.
“Concerns surrounding AI-related data center and infrastructure investment have been building for several days,” said Roger Lee at Cavendish. “The market probably needs some reassurance that the huge capex investment is generating a return. That is hard to see at the moment.”
Investors are now waiting for results from the biggest AI spenders for clues on how long the vast outlays can continue and at what pace. SpaceX is expected to report after the close on Tuesday, followed by Meta Platforms Inc tomorrow.
Traders will also want to see whether Netflix Inc can produce hit movies and TV series again to turn around a $135 billion slide in market value this year.
Tuesday’s risk-off mood extended across regions. MSCI Inc’s benchmark for Asia touched its lowest level since July, with South Korea’s Kospi index falling 3.7 per cent. Industrial goods and services, along with mining stocks, pulled Europe’s Stoxx 600 down 0.7 per cent.
Markets have already begun to price in a slowdown in earnings growth, said Mathias Heim, chief investment officer at Belle Capital.
“A return to the narrative of ever-higher capex guidance looks unlikely at this stage,” Heim said. “I would expect a period of digestion rather than a sustained rebound: slower growth for AI capex beneficiaries and potentially continued stress for highly leveraged neocloud providers.”
Bonds, meanwhile, got a boost from record demand at an auction of 20-year Japanese debt. French bonds remained under pressure, with the 10-year yield premium over safer German debt rising above 150 basis points.
“We see opportunities where higher sovereign bond yields better compensate investors for risk without signaling weaker fundamentals,” the BlackRock Investment Institute said in a note. Yet, the sharp sell-off in French government bonds shows “selectivity is key.”
“Fundamentals remain strong enough to support equity dip-buying, with the latest scare more financing- than demand-driven. But investors are reassessing exposures and hedges in favour of quality.”
General Motors Co narrowed its full-year profit forecast and said it would buy back another $20 billion in stock, reflecting strong cash flows even as the carmaker’s sales are softening.
General Electric Co raised its full-year outlook amid strong aircraft engine demand, in a sign that air travel has yet to retreat despite resurgent jet fuel prices.
Amazon.com Inc said it would invest more than €16 billion ($17.9 billion) next year in Germany for operations including data centres, a satellite programme and Prime Video media production.
RTX Corp raised its full-year outlook for a third straight quarter as the aerospace and defence manufacturer gets a boost from robust global air travel and rising demand for military hardware.
Tencent Holdings Ltd, Alibaba Group Holding Ltd and ByteDance Ltd have ordered more than 3 million new Nvidia Corp graphics cards, Reuters reported, citing people familiar with the matter.
Some of the main moves in markets:
Stocks
– S&P 500 futures fell 0.3 per cent as of 8:09 am New York time
– Nasdaq 100 futures fell 0.7 per cent
– Futures on the Dow Jones Industrial Average were little changed
– The Stoxx Europe 600 fell 0.7 per cent
– The MSCI World Index fell 0.2 per cent
Currencies
– The Bloomberg Dollar Spot Index fell 0.1 per cent
– The euro was little changed at $1.1215
– The British pound rose 0.3 per cent to $1.3348
– The Japanese yen rose 0.2 per cent to 158.13 per dollar
Cryptocurrencies
– Bitcoin fell 0.8 per cent to $81,284.74
– Ether fell 0.8 per cent to $2,379.61
Bonds
– The yield on 10-year Treasuries declined three basis points to 5.11 per cent
– Germany’s 10-year yield declined four basis points to 3.42 per cent
– Britain’s 10-year yield was little changed at 5.44 per cent
Commodities
– West Texas Intermediate crude rose 4.5 per cent to $108.32 a barrel
– Spot gold fell 0.7 per cent to $4,113.69 an ounce
