Chip rout rolls on as hot PPI lands and Nasdaq futures slide 1.2%

• US: Wall Street ended Wednesday lower. The S&P 500 closed down 1.11% at 7,718.94 and the Nasdaq Composite fell 1.88%, while the Dow finished almost flat (-0.09%). Futures are the only live read on today. S&P 500 futures are trading 0.3% lower and Nasdaq 100 futures 1.2% lower.
• Asia: Chipmakers led a rout. The Kospi closed down 7.57%, the Nikkei 225 down 4.9% and Taiwan down 3.41%. The Hang Seng ended 1.03% lower and Shanghai 1.59% lower.
• Europe: Trading mid-session is split. The FTSE 100 is up 0.83% and the CAC 40 is up 0.46%, while the DAX is off 0.24% and the Euro Stoxx 50 is down 0.63%.

This is a technology sell-off that rising rates set off. Wednesday's September CPI showed annual inflation at 3.7% against 3.6% expected. That revived talk of a Federal Reserve rate hike at the meeting at the end of the month. It hit a market already questioning how the AI data-centre build-out is being paid for. The strain is clearest in credit markets. Oracle's five-year credit default swap spread, in effect the cost of insuring its debt, has widened to 288bp from 260bp a week ago, and CoreWeave's has pushed above 1,000bp. Companies that borrow heavily to build capacity suffer most when money costs more. Asia sits at the heart of the chip supply chain, so it took the heaviest hit. The IMF also warned that an AI correction could weigh disproportionately on the region.

This morning's data added to the inflation worry, yet bonds still rallied. The 10-year Treasury yield is down 13bp at 5.06% and the 30-year is down 13.5bp. The likeliest explanation is that money leaving tech is moving into Treasuries. A weak core retail figure also hints that energy costs are starting to squeeze consumers. Even so, a rally of that size straight into a hot producer-price print has no clean explanation, and it may not last.

The tell is that lower yields are not helping Nasdaq futures. Falling long yields usually support growth stocks, because much of their value rests on profits far in the future. Today they are not working, which says the market is pricing the risk in AI financing as well as the cost of money.

Risk appetite is weak but this is not panic. The VIX is at 17.4, up 0.53 points. Our own breadth count across PrimerIQ's US universe had 1,371 advancers against 4,235 decliners on Wednesday, and Asia was worse, with 1,947 risers against 10,619 fallers. The US sector split points to rotation rather than outright liquidation: technology fell 2.98% while health care rose 2.53% and consumer staples 2.22%. Safe havens are in demand. Gold is up 1.42% at $4,166.30 and Treasuries are firmer, although the dollar index is 0.45% weaker.

Three releases at 08:30 ET came in hotter than forecast:

• Producer prices (September): up 1.3% on the month against about 0.6% expected, and 6.3% on the year. Core producer prices, which strip out food and energy, rose 0.7% on the month. Fuel costs did much of the work.
• Retail sales: up 0.8% against 0.3% expected.
• Control group: this narrower measure of consumer spending rose only 0.1% against 0.3% expected.

Coupled with Wednesday's CPI, the case for a hike at the Fed's meeting at the end of the month gets harder to dismiss. Brent crude is down 1.43% at $104.54, which takes a little heat off energy prices.

Fed speakers come next. Cleveland Fed President Beth Hammack speaks at 16:30 ET, and Fed Chair Kevin Warsh is due to speak late tonight.

TSMC beat forecasts, with earnings per share of $4.60 against $4.52 expected. It posted a sixth straight quarter of record profit and guided fourth-quarter revenue to $52.3–54.3bn, yet its US shares are lower before the open. That is a sign that worries across the sector are outweighing company results for now. Marsh McLennan (EPS $2.03 against $1.97) and Ericsson (a 37.6% earnings surprise) also beat. PNC, U.S. Bancorp, BNY, Schwab and Prologis have reported too, but there is no clear read yet on how their shares have taken it.