Good morning. US equities fell overnight, led by technology and semiconductor shares, after Meta's plan for a new class of non-voting shares to fund its artificial intelligence spending led investors to reassess how much capital the AI data-centre capex cycle will need and who will supply it. Investors moved into US government bonds, and the 10-year Treasury yield fell 20 bps to just under 5 per cent, its lowest since 23 September. Bonds rallied even as oil rose on fresh attacks on Saudi Arabia. Gold fell 2.6 per cent to US$4,045 an ounce as haven demand went to Treasuries instead.
The selling began in Asia, where chip and AI-linked shares fell across the region in the prior session, and continued through Europe, where French government bonds weakened again against German debt. Lam Research's December-quarter guidance, released on Wednesday, added to the pressure on chip-equipment makers, and Barclays said it would cut about 5,000 jobs as it adopts AI across the bank.
Locally, money markets now price a fifth Reserve Bank rate rise this year at the 3 November meeting as more likely than not, and Treasurer Jim Chalmers is due to say today that higher rates and inflation are likely to slow growth. On the ASX, Fortescue warned that its iron ore price dispute with China's state buyer could affect operations if it runs past year end, and Mirvac said rate rises and tax changes had slowed residential sales.
S&P 500 futures are trading at 7,706 this morning, down 1.2 per cent, and Nasdaq 100 futures at 29,152, down 2.9 per cent, while Dow Jones futures were unchanged at 53,079. The losses were concentrated in AI-linked shares: Nvidia fell 4 per cent and Amazon more than 3 per cent, the AFR reported. The 2-year Treasury yield fell 19 bps to 4.6 per cent, and the VIX volatility index rose 14.6 per cent to 19.12.
The Stoxx 600 fell 1.0 per cent to 637, the DAX 0.8 per cent to 25,383 and the FTSE 100 0.3 per cent to 10,724. The euro is at US$1.1217 this morning, down 0.1 per cent.
In the prior session, the Nikkei 225 closed 2.7 per cent lower at 62,908 and the Hang Seng 3.0 per cent lower at 22,935, as chip and AI-linked shares sold off across the region, including Samsung and SK Hynix in Seoul. The Shanghai Composite fell 1.5 per cent to 3,658, and the CSI 300 fell as much as 1.7 per cent during the day, taking its fall from its June high to 20 per cent, the AFR reported. Since the Asian close the yen has strengthened: the US dollar buys 156.88 yen this morning, down 0.8 per cent.
The ASX 200 finished yesterday's session down 0.4 per cent at 8,793, with energy the weakest sector and real estate the strongest; only three of the 11 sectors fell. The 10-year government bond yield closed 2 bps lower at 5.3 per cent. With the US 10-year down 20 bps overnight, Australian 10-year debt now pays 31 bps more than its US equivalent, up from 13 bps a session earlier. The Australian dollar is at US70.17 cents this morning, down 0.2 per cent.
Claims have held at or below 200,000 for six consecutive weeks, near their lowest since 1969, while continuing claims rose 25,000 to 1.728 million. The AFR attributed the overnight Treasury rally to haven buying during the AI sell-off and to fading expectations of Fed rate rises next year, not to any weakening in the labour data.
The New York Times reported that the US and Israeli militaries have drawn up specific plans for renewed strikes on Iran after next month's midterm elections, CNBC reported. The strike plans and the Houthi attacks on Saudi Arabia both raise the risk to Gulf supply, and oil rose on a night when equities fell.
French debt weakened on a day when US Treasuries, the main haven market, rallied. The European Central Bank's next decision is on 29 October.
The Wall Street Journal attributed the fall to the lingering effect of the energy shock on household budgets.
Swaps still price about an 85 per cent chance that the Reserve Bank of New Zealand raises its cash rate 25 bps to 3.00 per cent on 28 October, and more than 100 bps of increases over the next 12 months.
It said growth this year and next would be considerably higher than its August forecasts of 3.3 and 2.9 per cent, and that it would decide the timing and pace of future increases; analysts expect a peak of 3.50 per cent, with one rise in November and another in early 2027.
The pipeline carries crude across Saudi Arabia to Red Sea ports, so at the targeted 10 million barrels a day its capacity sets how much Saudi oil can reach market if passage through the Strait of Hormuz is disrupted.
A rise would take the cash rate to 4.85 per cent from 4.6 per cent. If the board holds in November, a rise is fully priced by February, and markets have begun to weigh a sixth rise that would take the cash rate above 5 per cent. Westpac, Goldman Sachs, ANZ, Citi, HSBC and RBC Capital expect a November rise and NAB a hold; AMP's My Bui, writing on 16 October before Deputy Governor Andrew Hauser's speech, also expected a hold. Westpac expects trimmed-mean inflation of 0.9 per cent for the September quarter, above the RBA's August forecast of 0.8 per cent; the figure is released on 28 October.
The update will add about $50 billion of business investment, largely data-centre construction, the AFR reported. Real government spending grew 4.3 per cent last financial year, against the 1.8 per cent projected in the 2024 budget, and the RBA has now told a parliamentary committee in writing that lower government spending would generally reduce inflationary pressure.
Meta's results release said the scale of investment needed to compete and expand infrastructure during the AI transformation "is significant", and narrowed 2026 capex guidance to US$135 billion to US$145 billion, from US$130 billion to US$145 billion. Each Class A and Class B share will receive one Class C share after the new class takes effect on 19 January 2027, which Meta expects to work as a two-for-one split without changing anyone's voting power.
September-quarter revenue was US$8.2 billion, up from US$6.7 billion in the June quarter, and non-GAAP earnings were US$2.20 a share against US$1.82. We could not confirm a published consensus for the guidance. Lam's orders track how fast chipmakers are adding capacity for AI, and the AFR reported that its fall weighed on semiconductor shares across the market.
The cuts follow National Australia Bank's plan, announced on Tuesday, to cut up to 2,500 roles by mid-2027. Reports differed on whether third-quarter pre-tax profit of about £2.3 billion met forecasts, and the shares traded close to flat in London.
Fortescue said its operations may be affected if the talks are not concluded by the end of the calendar year, in which case it would have to cut production guidance; it sells about 90 per cent of its ore to China. No consensus for shipments was published that we could confirm. The shares fell 4 per cent on Thursday and are down 34 per cent since the start of the year.
It recorded 429 net deposits and lots exchanged in the quarter and 291 settlements, against 265 a year earlier, with about $1.4 billion of pre-sales on hand; chief executive Campbell Hanan said the slowdown was most marked in New South Wales and Victoria and more recently Queensland. Investment-portfolio occupancy held at 97 per cent. The update gave no consensus comparison and we could not confirm the share-price move.
The union said Westpac timed the announcement to coincide with National Australia Bank's plan, announced on Tuesday, to cut up to 2,500 roles by mid-2027.
“If this eased capacity pressures, it would also tend to reduce inflationary pressures.”
“We're not immune from the consequences of two wars, both impacting almost every economy in one way or another, posing risks to global growth, pushing up global inflation, and pushing up borrowing costs.”
“All up, a deeper dive into the labour market suggests it presents less of a constraint on further RBA cash rate increases than the unemployment rate alone might imply.”
“Our investments are paying off, the core business is strong, and we're seeing velocity across the board.”
“You need to do the infrastructure build to get the benefits of AI.”
“Investor sentiment remains very poor for China's onshore and offshore markets, and without new policy or tech catalysts, this kind of volatile, directionless environment may persist into early 2027.”
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Sources: Yahoo Finance, FRED, RBA, company filings.