A global selloff in stocks gained momentum as doubts over returns from billions of dollars in AI investment were exacerbated by a surge in oil prices, rekindling inflation concerns. MSCI's Asia Pacific equities gauge fell 2.2%, following a substantial drop on Wall Street where the S&P 500 Index experienced its largest decline in a month. Regional chip bellwethers like Samsung Electronics Co. and SK Hynix Inc., key beneficiaries of the global AI buildout, both slumped more than 7%. The tech-heavy Nasdaq 100 also indicated further losses.
Further weighing on market sentiment, Brent crude traded around $100 a barrel, having surpassed this level due to Houthi attacks on Saudi oil tankers in the Red Sea and threats from former President Donald Trump to extend US strikes on Iran. This 38% rise in Brent crude prices this month has reignited inflation fears, leading traders to price in higher interest rates. This situation complicates the Federal Reserve's policy outlook ahead of its meeting next week, with money markets now fully anticipating a rate increase by September.
The tech-led market selloff also saw major companies like Alphabet Inc. tumble 7.1% after increasing its capital expenditure forecast, while Tesla Inc. slid 15% as its profits disappointed despite strong electric vehicle deliveries. Alongside Alphabet, Meta Platforms Inc., Microsoft Corp., and Amazon.com Inc. had previously indicated plans to spend as much as $725 billion this year on AI ambitions. Analysts note that while the AI investment theme remains intact, the valuation of the more expensive parts of the AI trade will likely face increased pressure. Government debt in Japan, Australia, and New Zealand also declined, and gold extended its drop to about $4,025 an ounce as bets for higher interest rates made the yellow metal less appealing.
Money markets are now fully pricing in a rate increase by September, and the European Central Bank held its interest rates steady this week, with President Christine Lagarde laying groundwork for a potential rate hike in September. The dollar edged lower, although an upcoming Federal Reserve meeting could signal a more hawkish stance due to inflation risks. In other news, new proposed tariffs of between 10% and 12.5% on imports from most major trading partners were discussed, marking a significant move to reconstruct the US tariff wall.
