Asian stocks stabilise, Treasuries hold advances

Asian stocks were mixed Wednesday as investors assessed the global tech-led selloff and awaited Nvidia’s earnings for direction.

Asian equities swung between gains and losses as investors weighed the fallout from the selloff in global stocks, with traders watching whether regional markets can stabilize after Wall Street’s sharp losses.

MSCI’s stocks gauge for Asia Pacific was little changed after the index had its biggest drop since early April on Tuesday. Contracts for US stocks edged lower after the S&P 500 index fell for a fourth day. An index of the so-called Magnificent Seven declined 1.8%.

Bitcoin steadied to trade around $92,500 after briefly dropping below $90,000 on Tuesday.

A selloff in the world’s biggest tech firms has dragged global stocks to a one-month low, as Wall Street questions whether AI spending is delivering meaningful returns. The focus now turns to Nvidia Corp., whose earnings on Wednesday will test sentiment at the heart of the AI boom and may set the next direction for markets after the rally since April.

“The question isn’t really whether we’re in a bubble,” said Sonu Varghese at Carson Group. “The real question is how long the current trend in AI spending will last and how bad the fallout will be when it ends.”

The S&P 500 is down more than 3% this month, on pace for its worst November since 2008. Volatility has roared back. Wall Street’s so-called fear gauge, the Cboe Volatility Index, topped 24 — above the key 20 level that causes concern for traders — and reached its highest in a month.

Bob Diamond, the former chief executive officer of Barclays Plc who now runs investment firm Atlas Merchant Capital, said turmoil in global markets in recent days resembles a “healthy correction” as investors grapple with how to assess elements of technological change.

“We’ve seen risk assets be repriced,” said Diamond. “In my sense, this is a healthy correction, not something that’s turning into a bear market.”

Another major focus for investors is whether the Federal Reserve will cut interest rates next month. Traders have less conviction about another reduction in borrowing costs, with swaps now implying a less-than-50% likelihood of a December move. Several policymakers have recently cautioned against one, citing the risk of inflation, although Fed Governor Christopher Waller repeated his view in favor of lowering rates.

Treasuries are on course for their first back-to-back gains of the month, edging higher amid the selloff in stocks and fresh signs of weakness in the US labor market. The yield on 10-year Treasuries held steady at 4.11% after sliding three basis points in the prior session.

Jobless claims totaled 232,000 in the week ended Oct. 18, according to the Labor Department website showing historical data for claims. Companies shed 2,500 jobs per week on average in the four weeks ended Nov. 1, according to ADP Research.

The September US jobs report is scheduled to be released on Thursday after a lengthy delay.

The ADP snapshot of the labor market has helped bridge the gap with official employment data delayed by the longest government shutdown in history. While funding to official statistics agencies has been restored, it’s still unclear when October economic data will be issued.

“The stock market has started to doubt the Fed’s ability to cut rates in December, so should Thursday’s jobs report come in weaker than expected, it may clear the path for the Fed to cut in December and fuel the Santa Claus rally we anticipate, which could push the S&P 500 to 7,100 by year-end,” said James Demmert at Main Street Research.

Back to Nvidia, the company has grown larger than the energy, materials, and real-estate sectors combined and depending on the day, it even exceeds the combined weight including the utilities sector, according to Ryan Grabinski at Strategas. It’s also bigger than the entire industrials sector.

“The outcome is likely to send ripple effects through both US and international markets,” Grabinski said. “Although expectations for AI more broadly have cooled in recent weeks, this report has the potential to shift sentiment back to optimism. That said, the bar is undeniably high right now.”

In commodities, oil rose as traders weighed a report showing rising US stockpiles against concerns about the fallout from sanctions on Russia.

Elsewhere, China sold €4 billion ($4.6 billion) of euro-denominated bonds, drawing record demand in the latest sign of growing investor appetite for the country’s debt sales.