Global equities experienced a broad decline following calls from major AI companies to slow the development of advanced artificial intelligence models. This sentiment was further exacerbated by a significant jump in oil prices. Tech stocks were particularly hit as traders expressed concern that efforts to curb the progress of cutting-edge AI could negatively impact the boom that has been driving hundreds of billions of dollars in capital expenditure. The Nasdaq 100 futures, for instance, sank 1.4%, and an exchange-traded fund tracking key chip stocks dropped 4.7% in early trading. SoftBank Group Corp., a major backer of OpenAI, saw its shares slide over 10% in Japan, while South Korea's Kospi index slumped 3.3%. European tech stocks also faced declines, with companies like ASML falling over 4% and Infineon dropping more than 6%.
The decline in risk sentiment was compounded by a sharp increase in oil prices. Brent crude jumped 2.5% to top $107 a barrel after Saudi Arabia closed its East-West pipeline as a precautionary measure following attacks. This rise in oil prices, along with hotter-than-expected US inflation data, strengthened the case for higher interest rates, with money markets indicating a nearly 90% chance of a Federal Reserve rate increase. The dollar rose 0.4%, and the euro fell to a one-month low against the dollar. The Stoxx 600 in Europe fell 0.3%, and the region's bonds underperformed as the higher oil and gas prices worsened the inflation outlook, with the yield on two-year UK gilts jumping six basis points to 4.87%.
Analysts noted that the market was facing a "double blow" from the convergence of AI development slowdown concerns and rising oil prices. Tim Waterer, chief market analyst for KCM Trade, described the situation as "two unwelcome headwinds collide" creating a difficult mix for risk assets, especially with the 10-year Treasury yield nearing 5%. Chris Armstrong at Berenberg added that the market was unwinding some of the "irrational exuberance" seen in the middle of the summer, with this event bringing down expectations further. While some investors remain cautious, others believe that any pullback might be short-lived, as demand for computing infrastructure in the AI sector is expected to remain strong despite the calls for a slower development pace.
