What moved
- US (closed last night): The Nasdaq fell 1.88% to 26,692.87 and the S&P 500 lost 1.11% to 7,718.94. The Dow slipped only 0.09%. S&P 500 futures are trading 0.33% lower and Nasdaq 100 futures 0.87% lower, so pressure on tech persists.
- Asia: The selloff was heaviest here. The Kospi closed down 8.73% at 5,484.38, the Nikkei down 5.05% at 64,323.02 and Taiwan down 3.41%. The Shanghai Composite ended 2.19% lower. The Hang Seng is trading 1.34% down.
- Europe (closed yesterday): Europe stayed positive even after the US data. The FTSE 100 gained 0.70% to 10,724.86, the CAC 40 0.58%, the Euro Stoxx 50 0.38% and the DAX 0.15%.
Why
The trigger was US consumer prices. Headline CPI rose to 3.7% year on year in September, above the 3.6% expected, and core inflation reached 2.6% against forecasts of 2.5%. Higher petrol and energy costs drove most of the rise. Two Fed officials, John Williams and Susan Collins, had already said that morning that one more rate rise this year looked appropriate. After the print, the market-implied probability of a quarter-point hike at the 28 October meeting rose to 31.6% from 22.1%. Expensive growth stocks suffer most when rates are expected to rise, because their value rests on profits far in the future, and those are worth less when discounted at a higher rate.
The data hit a chip sector that was already falling. The Philadelphia semiconductor index is down more than 10% over five days on concerns about Chinese competition, high valuations and whether AI spending can last. CoreWeave fell about 15% after its bond yields were reported at 15%, which raised fresh questions about how AI infrastructure is being financed. The sell-off was harshest in Seoul because Samsung Electronics and SK Hynix together make up more than half of the Kospi, and both fell more than 9%.
The bond market was less convinced. The 10-year Treasury yield rose about 6bp in the morning but finished 2.7bp lower at 5.19%. The dollar has also weakened overnight. Nothing clearly explains that reversal. One possible reading is that bond traders treat an energy-driven inflation rise as a threat to growth as much as to rates.
Sentiment & risk appetite
US investors grew more defensive, but the move does not look like panic. The VIX rose 10.48% to 16.87, which is still a modest level. Across PrimerIQ's US universe, decliners beat advancers by 4,225 to 1,372. The split between sectors shows money rotating rather than leaving equities: technology fell 2.98% while health care gained 2.53% and consumer staples 2.22%. Interest-rate volatility eased, with the MOVE index down 2.0% to 99.06. In the traditional havens, gold is up 1.14% at $4,154.60 and the dollar index is 0.45% weaker. Europe's tape was flat: our UK count shows 405 advancers and 405 decliners.
Economic calendar
UK GDP for August came out at 07:00 this morning. The economy grew 0.1% on the month against a consensus forecast of a 0.1% contraction, and July's 0.4% gain was left unrevised. Growth came from production, up 0.8%, with manufacturing up 1.2%. Services were flat and construction fell 0.2%. Over the three months to August the economy grew 0.7%. The figure is unlikely to cool expectations of a Bank of England rate rise on 5 November, which markets had been pricing heavily before the release. Sterling is little changed at $1.3241.
The main US releases come at 13:30 BST (08:30 ET): weekly jobless claims, September producer prices, September retail sales, and the October Empire State and Philadelphia Fed manufacturing surveys. After yesterday's CPI, a strong producer-price reading would add to the case for a Fed hike.
Earnings
TSMC's third-quarter results, released in Taipei today, beat estimates. Net profit rose about 69% from a year earlier and revenue came in above the top of the company's own guidance range. Taipei's main index had still closed 3.41% lower. The question for chip stocks today is whether this beat can offset the hit from rising rate expectations. No major UK results have moved the market so far this morning.