Morning Bid: Chips off the table

By Mike Dolan

Oct 13 (Reuters) - What matters in US ‌and global markets today

By Mike ​Dolan, Editor-at-Large, Finance ​and Markets

Tech and AI stocks suffered another bout of jitters on Tuesday as tensions built ahead of the latest US quarterly earnings season, which should be a signpost on the state of the AI boom.

It wasn't clear what triggered the latest selloff, ‌but it started late on Monday in holiday-thinned US trading. Some pointed to reports that recently listed Chinese chipmaker ⁠CXMT is rapidly catching up with competitors, while others pointed to comments from Broadcom's boss on dangerous, casino-like investment behaviour in AI stocks.

I'll get into all that and more below.

But first, ‌check out my latest column on how ‌Europe is getting the yuan devaluation it asked for, even if it's not for the reasons the continent's leaders would have chosen.

And listen to the latest episode of the Morning Bid daily podcast. Subscribe to hear Reuters journalists discuss the biggest news in markets and finance seven days ​a week.

CHIPS OFF THE TABLE

Asia had a rough morning. South Korea's two chip giants, Samsung and SK Hynix, plunged almost 10% each on Tuesday, the wider Kospi was down 6% and Tokyo's Nikkei fell sharply too as tech stocks like SoftBank plunged.

The stock market shiver gave battered bond ⁠markets a bid, even as crude oil prices climbed above $106 per barrel on Monday following another alarming few days of escalating conflict in the Middle East and Ukraine.

Despite President Trump's claim of an ​energy sector ceasefire between Moscow and Kyiv, Russia continues to hit Ukraine's power network.

Meantime, the IMF nudged up its world growth forecasts for this year and next, arguing that AI demand and trade are outweighing the pressure ​from the energy shock.

While it urged central banks to keep tightening policy to guard ‌against inflation risks, it also warned governments to rein in fiscal deficits that have been unnerving bond markets of late.

Finally, four of the big six US banks report their earnings later on Tuesday, kicking off the third-quarter season. Investors ⁠will pay close attention to the impact of the interest rate and bond environment, as well as a projected slowdown in financial trading revenues.

CHART OF THE DAY

The International Monetary Fund's latest Global Financial Stability Report on Tuesday warned that any slowdown in AI investment or declining profitability could trigger a correction in asset prices. It said growing ⁠leverage could be a catalyst for such a correction as so-called hyperscalers borrow ever-higher amounts and investors increase leveraged bets on AI stocks.

The IMF also said the rise ​of circular financing arrangements in the AI sector, involving equity and debt flows between AI firms, means that stress at key companies receiving investment could lower revenue forecasts and investment valuations across other major AI firms as well.

This, in turn, could weaken the value of the accumulated debt in those deals. The IMF's review of 14 such ‌transactions since 2023 found about $300 billion in equity investments and $650 billion in debt, in exchange for $1.4 trillion in future revenue commitments.

Today's events to watch

• US September small business survey from NFIB, US existing home sales

• Fed Governor ‌Christopher Waller, Boston Fed President Susan Collins and Richmond Fed chief Thomas Barkin all speak

• US corporate earnings: JPMorgan, Goldman Sachs, Wells Fargo, Citigroup, Johnson & Johnson, UnitedHealth

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Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and ‌freedom from bias.

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