Asian, European stocks fall as AI debt fears hit bonds

Stocks in Asia and Europe fell on Thursday, Oct. 8. Reports that big U.S. technology companies want to borrow tens of billions of dollars to buy AI chips added to strain in bond markets already shaken by inflation fears, high oil prices and a hawkish Federal Reserve. European shares fell to their lowest level in nearly four months.finance.yahoo

According to Reuters, MSCI's broadest index of Asia-Pacific shares outside Japan fell 1.2%. Investors worried that the tech companies would be competing directly with governments for a limited pool of funding. In Europe, the Stoxx Europe 600 dropped 1% to its lowest point since June 11. Germany's DAX lost 1%, France's CAC 40 fell 0.9%, and Italy's FTSE MIB fell the most, down 1.3%.rmb.reuters+1

Tech's borrowing spree

The Wall Street Journal News Corp ↗ 0.56% reported that Broadcom ↗ 0.59%, Oracle ↗ 4.65% and SpaceX are in talks for large private debt deals to pay for AI hardware. Reuters said Broadcom was looking for $50 billion in financing. It also said SpaceX planned to issue $30 billion in investment-grade debt and take out $10 billion in loans to buy chips from Nvidia ↘ 0.38%, one of SpaceX's major shareholders. After the news, the cost of insuring SpaceX debt against default rose to record highs.investing+1

"The AI build-out started on cash," Nigel Green, chief executive of deVere Group, told Reuters. "It's increasingly running on credit, and credit changes the risk profile entirely."rmb.reuters

European chip stocks fell. Infineon dropped 2.7% and ASML ↗ 0.58% lost 2.3%. In Asia, Japan's Nikkei 225 closed 1.42% lower and South Korea's Kospi fell 2.62%, according to RTTNews. Samsung Electronics shares also declined, even though the company forecast record profit. Samsung expects third-quarter operating profit of 107.4 trillion won, up 782.5% from a year earlier, but analysts had expected slightly more.tradingview+2

Yields, oil and the Fed

Earlier in the week, the yield on the 10-year U.S. Treasury reached 5.326%, its highest in 24 years. It eased somewhat after strong demand at a 10-year note auction. Minutes from the Fed's September meeting showed "most participants" thought "another increase in the target range for the federal funds rate would likely be appropriate by year end". Reuters reported that markets put the chance of a December hike at about 80%.today.rtl+1

Oil also added to inflation worries. Brent crude rose after The Atlantic reported that the White House had asked the Pentagon to draw up options for striking Iran before the Nov. 3 midterm elections. Attacks on tankers in the Strait of Hormuz have increased.tradingview+1

In Europe, worries about France's finances spread to Italian and Greek government debt, and the euro fell to near 17-month lows. Bank of France Governor Emmanuel Moulin called the country's situation "serious." He said France did not need help from the European Central Bank.rmb.reuters+1