By Jamie McGeever
ORLANDO, Florida, Oct 15 (Reuters) – The AI equity rout accelerated significantly in Asia on Thursday on growing fears about the murky, circular financing powering the intelligence revolution’s buildout, although its force evaporated in European and US trading hours. Still, safe-haven inflows meant US Treasuries had one of their best days in months, despite a surprisingly strong rise in US producer inflation.
Today’s Key Reads
• CoreWeave’s slump spotlights growing burden of debt behind AI boom
• AI credit worries send default insurance to record high
• AI investment boom may be papering over US economic cracks: Mike Dolan
• US producer prices post largest gain in 4-1/2 years; expensive gasoline boosts retail sales
• Warsh’s quest for quiet Fed gets vocal pushback
• Today’s Key Market Moves STOCKS: Asia in the red, South Korea -7.5% to 6-month low, Japan -5%. UK +1% to 7-week high. Nasdaq +0.1%, S&P 500 +0.3%, Dow +1%.SECTORS/SHARES: Eight sectors on the S&P 500 rise, three fall. Tech -0.5%, energy -1.5%, healthcare +2%. CoreWeave +6.5%, Nike +5%. Hewlett Packard, Dell -7%.FX: Dollar slides, biggest fall in six weeks. Biggest gainer is Swiss franc, +1%; biggest decliner is Brazilian real, -1.5%.BONDS: Bund yield -11 bps to 3.35%, lowest in over a month. US 10-year yield -10 bps to 5.08%, curve flattens. CoreWeave and other AI corporate bonds rise.COMMODITIES/METALS: Oil mixed — Brent flat, WTI +3%. Gold +1%, silver +3%.
Today’s Talking Points:
Funny money
The global AI trade has hit some major turbulence. South Korea’s KOSPI, a top 10 global index, has lost 20% of its value in barely a week, and on Thursday Japan’s Nikkei slid 5%. CoreWeave 2032 bonds issued just four months ago fell below 80 cents in the dollar, typically considered distressed debt levels, and the cost of insuring against major US AI firms defaulting has soared to record levels.
As ever, credit markets are likely to lead equities, and the risk of a self-fulfilling doom loop cannot be ignored — selling in certain names casts a shadow over healthier credits, and downgrades and loss of investment-grade ratings could force further selling. All while cash has been spent, and capex is increasingly being financed by debt, private credit and off-balance-sheet borrowing. We’re not at crisis point yet — look at the rebound in US stocks and bonds today — but vigilance is required.
Bonds be bonds
Incoming data shows US producer price inflation is running hotter than expected, like CPI the day before, WTI crude spikes another 3%, and Treasuries rally. Sounds counterintuitive, especially given how heavily fixed income markets have traded in recent weeks, but it shows that the demise of Treasuries’ safe-haven appeal has been greatly exaggerated.
