Regional Markets Slide After Volatile Week of Mixed Fed Signals – Asia Market Wrap

Asian equities slipped Friday, capping a volatile week defined by competing forces — enthusiasm over technological progress and growing doubts about the sustainability of lofty artificial intelligence valuations.

The MSCI Asia Pacific Index fell 1.1%, heading for its worst week since early August. In Japan, chip-related shares led losses, with SoftBank among the biggest drags. The decline followed another weak session on Wall Street, where AI-linked names such as Nvidia tumbled and the VIX volatility gauge spiked. Globally, the MSCI All Country World Index is on track to end a four-week winning streak.

The cautious mood looks set to carry into European trading, with futures signaling a softer open. US equity futures edged higher, while Tesla rose 1.6% in after-hours trading after shareholders approved a $1 trillion compensation package for Elon Musk.

Investors who drove this year’s rally on expectations of Federal Reserve rate cuts and AI-led growth are now questioning whether the enormous spending on computing infrastructure will yield sufficient returns. Several Wall Street executives have recently struck a more measured tone, warning that the market’s gains since April’s slump are being propped up by an increasingly narrow group of tech leaders.

Federal Reserve officials also struck varied notes. Cleveland Fed President Beth Hammack said inflation remains a greater risk than labor weakness, while Chicago’s Austan Goolsbee expressed unease about making policy decisions without fresh inflation data due to the government shutdown. Governor Michael Barr stressed that the Fed still has work to do to contain prices, and St. Louis’s Alberto Musalem cautioned that interest rates are nearing a level where they may stop restraining inflation. Chair Jerome Powell last week reiterated that a December rate cut is “not a foregone conclusion,” though investors still price in roughly a 70% chance of one.

Treasuries steadied in Asian trading after 10-year yields posted their biggest one-day drop in a month on renewed rate-cut bets. The dollar regained ground slightly following its sharpest decline since mid-October. Oil rose modestly but remains headed for a second straight weekly loss as rising global supply raises the risk of oversupply. Gold inched higher, hovering near the $4,000-an-ounce mark.

In China, exports unexpectedly fell in October amid renewed trade tensions with the US, underscoring the challenges facing an economy that’s showing signs of cooling as the year draws to a close.