Asian Stocks to Drop as AI Jitters Hit Wall Street: Markets Wrap

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(Bloomberg) — Asian stocks were set to fall Friday after a new wave of AI-linked bearishness hit Wall Street, weakening US tech and Bitcoin, and sending investors to the safety of Treasuries.

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The S&P 500 fell 1.6% while the tech-heavy Nasdaq 100 dropped 2% Thursday with megacaps slumping. The downdraft spread to areas including logistics and commercial real estate, in a sign investors are worried about the impact of AI. Cisco Systems Inc. plunged 12% as a tepid margin outlook signaled higher memory-chip prices are taking a toll, while an exchange-traded fund tracking software companies dropped 2.7%.

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Treasuries rallied across the curve, pushing the US two-year yield five basis points lower and the 10-year down seven basis points to 4.1%. Gold and silver fell, alongside Bitcoin which traded back down around $65,700.

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The worries weighed on contracts for equity index futures in Japan, Australia and Hong Kong. A gauge of US-listed Chinese companies dropped 3% in Thursday trading.

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Sharp swings in US trading reflected the rising stakes tied to the AI boom and the unpredictable ripple effects across sectors, regions and asset classes. The moves highlighted how quickly shifts in sentiment around artificial intelligence can reverberate far beyond the technology sector.

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“Software stocks are now trading like banks in 2008,” said Nick Ferres, chief investment officer of Vantage Point Asset Management in Singapore. “Asia has performed well so far this year, but I am concerned about correlation to global markets and a tactical unwind,” he said.

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Later Friday, January US inflation data is due, with the median forecast predicting a year-over-year increase of 2.5% for the core consumer price index, which strips out food and energy.

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Traders continued to assign little chance that Federal Reserve officials lower rates when they meet next in March, with a July cut fully priced in.

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Markets are complacent on the outlook for US inflation, making trades that pay out if price pressures climb look attractive, said Benjamin Wiltshire at Citigroup Inc. Investors may be underestimating the resilience of the US consumer and market expectations for inflation are likely to be revised slightly higher, he noted.

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“Markets seem to have this conviction that inflation is going to come down,” Wiltshire said in an interview. “We’re still in a structurally higher inflation environment.”

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In commodities, oil slid as risk-averse sentiment pervaded global markets and investors digested fresh developments in US-Iran tensions that continue to cloud the supply outlook.

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Read: Venezuela Plans to Grant More Oil Blocks to Chevron, Repsol 

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Despite the bearishness, there were pockets of good news for US stocks. Applied Materials Inc. surged 10% in late trading after delivering a surprisingly upbeat sales forecast, signaling that demand for artificial intelligence and memory semiconductors is fueling equipment purchases.