AI Rout Spreads to Asia as Bonds Rally and Japan's Inflation Tops 2%
Friday, 23 October 2026 — Tech stocks trimmed their losses into the European open after the US chip rout spread to Asia, and Treasuries pared yesterday's gains.
Our three themes for the day:
The first is the AI trade's funding question. Meta's filing said what the market feared: the hyperscalers, SpaceX, Anthropic and OpenAI are all raising capital at once, and the money to fund the build-out is not unlimited. The equity market reacted by selling chips and buying staples, and the pulled Solidigm listing points to a primary market closing to AI issuers. My read is that next week's Microsoft, Alphabet and Amazon results will be judged on cash flow and funding, not on revenue.
The second is the return of the haven trade. Treasuries hedged stocks again yesterday for the first time in a year, Japanese bonds rallied through an above-target inflation print, and the yen reached a one-year high against the euro. Oil near its highest since May now reads as a growth threat as much as an inflation one, which is why traders pushed their expected Fed hike from December to January. The French spread at its widest since the euro debt crisis is the other side of the same flow. Some ECB speakers seem to agree, arguing that higher bond yields will dampen growth, which might mean they don't have to tighten that much after all.
The third is Japan's inflation. Core inflation is back above target, and the measure the BoJ watches most closely beat forecasts, but the economy minister says deflation is not over and the bank is expected to hold next week. The December hike the market prices in is the base case. The risk lies in Governor Ueda's press conference, where he could more clearly repeat the shift to guarding against an overshoot, which the market missed last month.
Chart of the day
Japan's consumer prices, % y/y, since 1971: headline 2.1% in September, core (excluding fresh food) 2.1% and core-core (excluding fresh food and energy) 2.4%, against the BoJ's 2% target. Core is above the target for the first time in nine months. Source: Japan Statistics Bureau (e-Stat), GGMA.
In brief
Meta's hunt for AI capital set off a rotation out of AI stocks yesterday: the Nasdaq had its worst day since June, chip stocks slumped, and Treasuries posted their biggest rally in more than two years.
Japan's core inflation rose above the Bank of Japan's target for the first time in nine months, and the measure excluding fresh food and energy beat forecasts, while Japanese bonds rallied on haven demand.
France's bond stress deepened, with the spread over Germany at its widest since the euro debt crisis, and President Macron said illegitimate protests will be banned before another weekend of demonstrations.
Brent heads for a third weekly gain after Houthi attacks on Saudi ports and oil fields, and the US and Israel have reportedly drawn up plans to strike Iran after the midterms.
Economists expect the ECB to pause next week and deliver one last hike in December, while traders price three more, and Bank of Italy Governor Panetta said rising yields are a drag on growth, not a crisis.
UK consumer confidence fell as sharply as after the Brexit vote, days before the budget, and retail sales fell more than expected in September.
Today's Macro Roadmap: Germany's flash purchasing managers' indexes come out at 09:30 CET, the euro area's flash indexes and the ECB's consumer expectations survey follow at 10:00 CET, the UK's flash indexes come out at 10:30 CET, the Bank of Russia announces its key rate at 12:30 CET, Statistics Canada publishes retail sales at 14:30 CET, the US flash indexes come out at 15:45 CET, the University of Michigan publishes its final October survey at 16:00 CET, and ECB Executive Board member Piero Cipollone discusses the digital euro in Turin at 16:00 CET.
The full briefing
Tech stocks trimmed their losses into the European open after the US chip rout spread to Asia, and Treasuries pared yesterday's gains (BBG). Japan's core inflation rose above the BoJ's 2% target for the first time in nine months, and Japanese bonds rallied regardless (Reuters) (BBG). Yesterday, the Nasdaq Composite fell 2.6% in its worst day since June, the S&P 500 lost 1.2%, and the Dow was little changed, after Meta's plan for a new class of nonvoting stock to fund its AI build-out, and its disclosure that future spending commitments have risen to about $825 billion, set off a rotation out of AI stocks into Treasuries, consumer staples and home builders (WSJ). The Philadelphia Semiconductor Index fell 6.7% (WSJ), and the ten-year Treasury yield fell 17 basis points in the biggest rally for Treasuries in more than two years (BBG). This morning, Nasdaq 100 futures rose 0.1% to 29,179 after erasing earlier declines, S&P 500 futures were little changed at 7,700, and Dow Jones futures fell 0.2% (BBG). Asian shares are heading for a fourth consecutive weekly drop, the longest losing run since April, and European shares are set for a modest gain at the open (BBG), with Euro Stoxx 50 futures little changed at 6,108 and DAX futures little changed at 25,465. Technology faces results from Microsoft, Amazon and Alphabet next week, alongside the Fed's decision (BBG).
Stocks
In stocks, the Kospi pared losses of as much as 4.1% to trade little changed as SK Hynix erased earlier losses and jumped 4%, and the MSCI Asia Pacific Index was down 0.1% after falling as much as 1.1% towards its lowest close since late July (BBG). The Nikkei 225 fell 1.7% at the Tokyo morning close (LS), Nikkei 225 futures fell 0.7% to 62,740, Hang Seng futures rose 0.9% to 23,151, CSI 300 futures rose 0.7% to 4,044, MSCI emerging-markets futures rose 0.2% to 1,580, and FTSE futures rose 0.1%. Retail investors spent the past week buying chipmakers, neocloud providers and memory makers, with SanDisk, Taiwan Semiconductor and Nebius the most bought names, and weekly inflows into technology ETFs were the second highest on record before the rout, according to a bank's trading-flow data (BBG). The S&P 500 Consumer Staples Index jumped 3.1% yesterday to a record and is on course for its best month since 1998 (BBG), and Clorox rose 4.6% as money moved into defensives (WSJ).
Japan
In Japan, core inflation rose to 2.1% y/y in September from 1.7%, matching the consensus and exceeding the BoJ's 2% target for the first time in nine months, and the measure excluding fresh food and energy rose to 2.4% from 1.9%, above the 2.3% consensus, with goods prices up 2.8% and services up 1.5% (Reuters) (WSJ). Sources say the BoJ will hold at the meeting ending on 30 October but may raise its inflation forecast and signal that underlying inflation has likely reached 2% (Reuters), and the Nikkei reports that the bank will forgo a consecutive hike in October with the target effectively reached (Nikkei). Governor Kazuo Ueda's remark last month that policy had entered a new stage, which the market missed when it sold the yen, means the bank has moved from coaxing prices higher to preventing an overshoot (BBG). Economy Minister Minoru Kiuchi said the conditions for declaring an official end to deflation have not been met and the government must be cautious, exposing a gap with the BoJ (Reuters), and the government is weighing a gradual phase-out of gasoline subsidies from December that would lift the average pump price to about 175 yen a litre in December and 180 yen in January from about 170 yen (Reuters). Japan's largest union group urged its members to seek 6% pay rises with a 5% floor in the spring negotiations (WSJ).
The euro area
In the euro area, an overwhelming majority of economists in a Bloomberg survey expect the ECB to pause next week and raise the deposit rate by a quarter point to 2.75% in December, the last move of the cycle, while traders price three more hikes over the next year; 70% dismiss any ECB intervention in French bonds and about 90% rule out the Transmission Protection Instrument (BBG). Bank of Italy Governor Fabio Panetta said the jump in bond yields will restrain the euro-area economy but is not a crisis, calling it a global move with its epicentre in the US that raises financing costs in Italy (BBG). Austrian central bank Governor Martin Kocher said these are not easy times for central banks either, because decisions are taken without knowing how a run of shocks will develop, and he gave no guidance on rates (APA).
Sweden & Switzerland
In Sweden, Riksbank Deputy Governor Per Jansson said the recovery is clear and broad-based, warned that higher energy prices could become part of underlying inflation, and recalled that in September he judged the upside risks warranted a slightly faster normalisation of the policy rate than the June forecast, two weeks before the next decision (Riksbank). In Switzerland, the summary of the SNB's September discussion shows officials dropped their heightened willingness to intervene because haven demand for the franc had faded since June, with the franc about 3% weaker in trade-weighted terms and inflation at 1% in September, the highest in two years (BBG).
The UK
In the UK, GfK's consumer confidence index slumped to -24 in October from -13, far below the -14 consensus, an 11-point fall as large as the drop after the 2016 Brexit vote, with every component lower and big-ticket purchase intentions down sharply before Chancellor John Healey's budget on 28 October (BBG). Bank of England Deputy Governor Katharine Braddick used her Mansion House speech to set out a five-year strategy for the PRA and reforms to the senior managers regime, without touching on monetary policy (BoE).
New Zealand
In New Zealand, most economists expect the RBNZ to raise the cash rate to 3% next Wednesday, ten days before the 7 November election, with inflation expected to accelerate above 4% in the fourth quarter on fuel prices and a currency about 4% below the bank's assumption (BBG).
Currently, short-term interest rate (STIR) traders price a 7% probability of a Fed rate rise next week and 22 basis points of tightening by December; for the ECB a 2% probability of a rate rise next week and 18 basis points by December; for the BoJ a 3% probability of a rate rise on 30 October and 16 basis points by December; and for the BoE a 98% probability of a rate rise in November and 34 basis points by December. They price an 88% probability of an RBNZ rate rise next Wednesday and 40 basis points by December, an 81% probability of a Bank of Canada rate rise the same day and 40 basis points by December, and a 50% probability of an RBA rate rise on 3 November and 18 basis points by December.
Currencies
In currencies, the yen was little changed at 156.89 per dollar after three straight days of gains (BBG), and it reached a one-year high against the euro, which fell to 175.20 yen in early Asian trading (WSJ). The dollar index was little changed at 101.69, the euro was little changed at 1.1211 against the dollar, and sterling slipped 0.1% to 1.3387. The Australian dollar fell 0.1% to 0.7012, the New Zealand dollar rose 0.1% to 0.5692, and the franc eased 0.1% to 0.8217 per dollar. Yesterday, the yen posted its strongest daily gain in almost a month as investors sought safety, while the euro fell 0.3% to 1.1198 against the dollar as France's unrest and fiscal outlook outweighed the AI worries (CNBC).
Bonds
In bonds, Treasuries pared some of yesterday's gains in Asia (BBG). The ten-year yield was at 4.97%, up 1.3 basis points, the two-year at 4.66%, up 1.7 basis points, and the thirty-year at 5.29%, up 1.2 basis points. Yesterday's rally took shorter-dated yields down by as much as 20 basis points. A gauge of the inverse relationship between Treasuries and AI stocks has strengthened to levels last seen a year ago, and traders pushed their expected Fed hike to January from December (BBG). The cost of options hedges against further gains surged to its highest since March, with calls on long-dated Treasuries priced above puts for the first time in seven months, and CME data showed fresh shorts in long-bond futures being covered (BBG). The FT warns of the risks in Treasury Secretary Scott Bessent's tilt towards short-term debt (FT), and analysts at a Canadian bank say the theory that China hides Treasuries in Canadian custody accounts is off base, since Canada's foreign bond holdings of more than C$1.1 trillion grew with its banks' deposits and hedge funds' relative-value trades (BBG). Japan's ten-year yield fell 7.0 basis points to 2.80% and the two-year fell 4.0 basis points to 1.87% as the tech rout drove haven demand, with life insurers signalling more JGB buying and foreign investors net buyers in seven of the past nine weeks (BBG). In France, the ten-year yield rose 6.5 basis points to 5.06% yesterday after touching 5.14%, the highest since July 2002, and the spread over Bunds widened to 177.7 basis points, the widest since November 2011, with Belgium's spread at its widest since 2012 and the German ten-year yield down 7 basis points to 3.34% on haven demand (Reuters) (BBG). Global corporate bond spreads widened to as much as 129 basis points, the widest since May 2025, and spreads on investment-grade Asian dollar bonds reached their widest since July (BBG).
Commodities
In commodities, Brent rose 0.8% to $114.12 a barrel, and WTI traded near $100.46 a barrel. Brent settled 4% higher yesterday at its highest since May (LS) (BBG). Houthi militants claimed attacks on the Saudi Red Sea port of Yanbu and deadly strikes on an oil field and an airport, Aramco evacuated its Dhahran headquarters after an alarm, and Brent is heading for a third weekly gain, up more than 3% this week and more than 85% this year (BBG). Gulf crude exports have recovered to near pre-war levels, but product shipments remain constrained (BBG). President Trump invoked the Defense Production Act for petroleum capacity and said he will release $150 million to expand US refining (LS). Charter fees for ships passing through the Strait of Hormuz have risen to more than 100 million yen a day after a series of attacks on merchant ships believed to be by Iran (Nikkei). Gold was little changed at $4,022 an ounce, near a three-month low (LS), and silver lost 1.5% (BBG). Copper rose 0.9%. Chile's finance minister said copper output will fall 8% to 9% this year, the weakest in more than two decades, which could bring the first fall in global mined copper since 2017 (BBG). Bitcoin rose 0.7% to $81,736, and Ether rose 0.9% to $2,401.
Geopolitics
In geopolitics, two Israeli sources say the US and Israeli militaries have drawn up plans to renew joint strikes on Iran after the 3 November midterms, with petrochemical and nuclear sites among the targets, while the White House said the US will not attack Iran before the elections and the State Department has ordered non-essential personnel out of Saudi Arabia (Abcnews). The FT reports that President Trump's envoy says the US is prepared for a long stand-off with Iran (FT), and Trump told reporters the US has knocked out Iran and may go a little bit further (BBG). In France, President Emmanuel Macron said illegitimate protests will be banned in the coming days and blamed ultra-left groups for last weekend's riots, Lyon banned all Saturday protests, shops in central Paris boarded up, and the government prepared a security operation with troops alongside police (Reuters). President Vladimir Putin said Russia is ready to resume US-mediated talks with Ukraine next month, focused on security guarantees and Europe's security architecture rather than a short ceasefire, while calling the Donbas historically Russian land (Reuters). A CNBC survey put President Trump's economic approval at 34% against 65% disapproval, the lowest net reading of either of his terms, with voters preferring Democratic control of Congress by 52% to 45% and only 46% saying the Iran war was worth it (CNBC).
Corporate news
In corporate news, Meta fell 7% yesterday, erasing $124 billion of market value, after its filing said capital raises by Alphabet and SpaceX and anticipated fundraising by Anthropic and OpenAI make the environment increasingly challenging, its free cash flow turned negative for the first time as a public company, and SpaceX fell 9.1% and Tesla fell 3.1% (WSJ). OpenAI is closing in on a round of up to $30 billion at a $1.25 trillion valuation led by investors from the United Arab Emirates alongside Coatue, as a bridge ahead of a potential IPO, with signatures targeted by the end of next week (CNBC). SK Hynix scrapped the potential $10 billion US listing of its Solidigm unit after South Korean regulators and shareholders objected to a duplicate listing, and its shares rose despite the market slide (BBG). SpaceX aims to secure at least 80,000 cell sites across the US for a wireless network (BBG), Moderna and Merck fell after data on their melanoma vaccine disappointed (BBG), and Western Digital reported a jump in first-quarter revenue on AI storage demand (LS).
Research trade ideas
DoubleLine Capital's Jeff Sherman told Bloomberg Television he remains significantly underweight, if not short, the back end of the Treasury curve, arguing that heavy government borrowing and competition for capital from higher Japanese yields will keep pressing long-dated debt, and that he has started to nibble at hyperscaler and neocloud bonds yielding 12% to 15% (BBG). JPMorgan's global-markets strategists say hedge funds' equity exposure has fallen far enough that much of the long positioning, including that of trend followers, has been unwound, so positioning adjustments could now contain the downside, and they play down neocloud funding fears because neocloud capital spending of about $80 billion is a fraction of the $1.8 trillion spent in 2026 (MarketWatch).
Data and the day ahead
Data and the day ahead: UK retail sales fell 0.4% m/m in September against a 0.1% decline expected, after a 0.7% rise in August that was revised up from 0.5%, as shoppers bought less food and above-average temperatures hit demand for autumn clothing, while sales for the third quarter as a whole rose 0.7% (BBG) (ONS). Sales were up 0.8% y/y against 1.0% expected, after a revised 2.7%. Sales excluding fuel fell 0.7% m/m against a 0.1% decline expected, after a revised 0.9%, and rose 0.8% y/y against 1.4% expected, after a revised 2.9%. Japan's flash composite PMI was unchanged at 52.3 in October as services rose to 52 from 51.3 and manufacturing fell to 53.3 from 54.1, and Australia's flash composite PMI fell to 47.7 from 51.3, the first contraction in five months. Still to come: Germany's flash PMIs are out at 09:30 CET, with the composite at 53.4 from 53.8, the euro area's at 10:00 CET, with the composite at 52.7 from 53.1, alongside the ECB's consumer expectations survey, where the one-year measure is seen at 3.1% from 3.0% (you can find our preview here), and the UK's at 10:30 CET, with the composite at 51.7 from 52. Russia's key rate decision is due at 12:30 CET, with consensus at 14.0%, unchanged, Canada's August retail sales are out at 14:30 CET, with consensus at 1.3% m/m from -0.7%, the S&P Global US PMIs come out at 15:45 CET, with the composite at 57.6 from 58.4, the University of Michigan's final October survey follows at 16:00 CET, with sentiment at 46.3, unchanged, and one-year inflation expectations at 4.7%, unchanged, and ECB Executive Board member Piero Cipollone discusses the digital euro in Turin at 16:00 CET. Next week, the Fed, the RBNZ and the Bank of Canada decide on Wednesday, the ECB on Thursday and the BoJ on Friday (BBG) (Reuters), with results from Microsoft, Alphabet and Amazon alongside the Fed (BBG).
Time Stamp: 23 October 2026, 08:00 CET
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Tags: Japan CPI September 2026, BoJ December rate hike, Meta AI capital, Treasury yields haven demand, French bond spread, Brent oil Saudi attacks, ECB December rate hike, UK consumer confidence