GGMA Markets Briefing: Chip Rout Sinks Korea and Japan as Treasuries Rally on Haven Demand

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Here is a brief summary of today’s Markets Briefing: Chip Rout Sinks Korea and Japan as Treasuries Rally on Haven Demand

·       Korean and Japanese chip stocks sank on worries about Chinese competition and the financing of the AI build-out, after Broadcom's chief executive likened the AI trade to a casino.

·       Treasuries rallied on haven demand as cash trading resumed after Monday's holiday.

·       The RBA's minutes showed every member backed September's rate rise as excess demand looked greater than previously assessed, and the Board left the door open to further increases.

·       Japan's producer-price inflation slowed more than expected, easing the pressure for another Bank of Japan rise in October.

·       Oil eased after Monday's gains on the Houthi strikes on Riyadh's airport, and OPEC cut its forecast for oil demand growth this year.

·       Cleveland Fed President Beth Hammack argued for smaller, quicker rate moves to stop an inflationary mindset from taking hold.

Today's Macro Roadmap: Fed Governor Christopher Waller at 09:45 CET, the US NFIB small-business survey at 12:00 CET, US existing home sales at 16:00 CET, and the Fed's Barkin and Collins among the central-bank speakers.

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GGMA Markets Briefing: Chip Rout Sinks Korea and Japan as Treasuries Rally on Haven Demand

Korean and Japanese stocks fell sharply as concerns about Chinese competition and the financing of the AI build-out drove investors out of chipmakers (BBG). The Kospi slid 5.5% to 6,031, and Nikkei 225 futures fell 2.3% to 67,890. SK Hynix sank 10% and Samsung Electronics about 8%, after a Wall Street selloff yesterday left a US gauge of chip stocks at its weakest since mid-September (BBG). Kioxia fell more than 12% (BBG). Broadcom chief executive Hock Tan said that "a lot of investors have no clue what they are investing in" (BBG). Nasdaq 100 futures fell 0.8% and S&P 500 futures 0.1%. Treasuries rallied on haven demand as cash trading resumed after Monday's holiday (BBG).

In stocks, a report that China's CXMT has made progress on a memory design that Samsung and SK Hynix are also developing added to the pressure on Korean chipmakers (BBG). Foreign investors have sold more than 6.3 billion dollars of Korean stocks on a net basis in October, and the Kospi is down a third from its June record (BBG). Tokyo Electron and Advantest also fell sharply, TSMC lost 1.8% in Taipei, and Micron Technology fell 3.9% in New York yesterday (Yahoo). Nvidia's share of China's data-centre AI-chip market fell to 34% in the first half as Huawei's rose to 28%, according to IDC data (Reuters). Hong Kong's Hang Seng and China's CSI 300 were little changed at 24,248 and 4,291, India's Nifty 50 rose 0.6% to 22,497, and Australian stocks rose 0.2%. Euro Stoxx 50 futures fell 0.1% to 6,207, and DAX futures were little changed at 25,393.

Regarding the Fed, Cleveland Fed President Beth Hammack said it is preferable to make smaller policy adjustments quickly rather than wait and risk a larger course correction (CNBC). She warned that persistently elevated inflation raises the risk of an inflationary mindset becoming entrenched in the economy (CNBC). Hammack added that frequent smaller adjustments reduce the risk of being blown off course (Morningstar).

In Australia, the Reserve Bank's minutes showed that all members judged a 25 basis point rise in the cash rate appropriate in September, as excess demand appeared greater than previously assessed (RBA). Members noted that domestic petrol and diesel prices were 13% higher than forecast in August. The Board said it would do what it considered necessary, including raising the cash rate further if required (RBA).

In Asia, Bank of Japan Governor Ueda said the central bank will continue to closely monitor bond markets, and the BoJ said it will supply dollar funds against pooled collateral (LS). South Korean President Lee said the country cannot avoid raising interest rates (LS).

In Europe, Bank of England policymaker Megan Greene said second-round effects would not show until early next year (LS). ECB Governing Council member Christodoulos Patsalides said the outlook had become "extremely unpredictable" and that everything could change by December (Econostream-media).

In currencies, the dollar index fell 0.2% to 102.41. The yen rose 0.2% to 158.32 per dollar. Prime Minister Sanae Takaichi said the yen was raised in general terms at the US-Japan summit and that Tokyo will keep talking to Washington to ensure stable currency markets (LS). The euro rose 0.2% to 1.1176 dollars, sterling 0.1% to 1.3223 dollars, and the Swiss franc 0.2% to 0.8329 per dollar. South Korea's won fell 0.7% to 1,343.84 per dollar, and India's rupee rose 0.5% to 95.27 per dollar. The People's Bank of China set its daily yuan reference rate weaker than analysts had estimated (LS), and the offshore yuan was little changed at 6.6962 per dollar. A major bank argues the yuan is undervalued by 20% to 25% and sees it strengthening well beyond the year-end forecasts in a Bloomberg survey of analysts (BBG). The Australian dollar was little changed at 0.6963, and the New Zealand dollar rose 0.1% to 0.5595.

In bonds, Treasuries extended their gains. The ten-year yield fell 4.8 basis points to 5.19%, the five-year 4.5 basis points to 4.98%, and the thirty-year 5 basis points to 5.55%. The ten-year yield reached its highest level since 2002 last week (BBG). Japan's ten-year yield was little changed at 3.01%, and Australia's fell 4.8 basis points to 5.29%. Bund futures rose 0.3%, French OAT futures 0.5%, and Italian BTP futures 0.4%. The International Monetary Fund said surging government bond yields are the biggest emerging risk to the global financial system, and found Korea and Japan among the equity markets most exposed to an AI-driven correction (BBG). BlackRock's research arm upgraded short-term Treasuries to overweight and longer-dated debt to neutral, citing "excessive" expectations for Fed tightening, and cut US equities to neutral (BBG). Investors are debating whether the Treasury will cut or cancel the 20-year bond at its 4 November refunding, and one bank expects 3 billion dollars less at each 20- and 30-year auction, funded by more bill sales (BBG). In Europe, Blackstone President Jon Gray said fiscal strains in France, the UK, and continental Europe are now a more pressing risk than in the US, where AI investment supports growth (BBG). The Bank of Italy warned that deficits above 3% of GDP in 2027 and 2028 could complicate Italy's exit from the EU's excessive-deficit procedure (Reuters).

In commodities, WTI fell 1.2% to 92.59 dollars a barrel and Brent 0.5%. Brent futures had risen 1.8% yesterday (CNBC). Houthi strikes on Riyadh's main airport and Ukrainian reports that Russia had violated the energy ceasefire lifted prices on Monday (CNBC). The weekend attacks on the airport killed at least 16 people, including a US citizen, and wounded about 300, and Trump said he would look into joining Saudi-backed strikes against the Houthis (BBG). Several tankers were struck by unknown projectiles in the Strait of Hormuz on 11 October, according to UKMTO (LS). Saudi Arabia aims to raise its pipeline export capacity away from the Persian Gulf to 10 million barrels a day within two to three years, and could add 1.2 million barrels a day within seven to eight weeks by converting a gas pipeline to carry crude, Energy Minister Prince Abdulaziz bin Salman said (BBG). OPEC cut its forecast for growth in oil demand this year to less than a third of the 1.4 million barrels a day it projected at the start of the year, and expects the delayed demand to appear in 2027 (Investing.com). President Donald Trump's deal for Russian diesel is unlikely to lower prices before the midterm elections, as the first release of 2.25 million barrels in October is 1.4 million barrels less than US consumers use in a day (BBG). Russian Deputy Prime Minister Alexander Novak said monthly diesel exports of 3 million tons would only be possible after December (BBG). Gold rose 0.5% to 4,191 dollars an ounce, silver 0.4% to 60.56 dollars, and copper 0.2% to 6.76 dollars a pound. Natural gas rose 0.3% to 3.18 dollars. Bitcoin rose 2.1% to 83,505 dollars and Ether 3.3% to 2,525 dollars. Bitcoin remains about a third below its October 2025 record (Pluang).

In geopolitics, Etihad and Qatar Airways suspended flights to Riyadh after the Houthi attacks (LS). US envoys told Ukrainian officials that the diesel deal is part of a bid to draw Russia back to peace talks (Reuters). European officials said the US should impose more sanctions on Moscow instead (BBG). The Kremlin rejected a proposal from Ukrainian President Volodymyr Zelenskyy for a 60-day truce (Reuters). Two ships were hit by drones off Bulgaria's Black Sea coast and one sank, Prime Minister Radev said (LS). North Korea test-fired a tactical ballistic missile, and Trump said he may meet Kim Jong Un during his Asia visit (LS).

In corporate news, Applied Materials expects to double revenue over the next few years without a matching rise in headcount, as it relies more on AI tools (BBG). Kroger plans to cut more than a third of its corporate jobs over three years (BBG). Anthropic is looking to invest in data centres in Australia, preferably in regional areas and powered by renewable energy (BBG). Sales at LVMH's biggest division slumped as conditions worsened in China, and Visa received approval to prepare a domestic bank-card clearing business in China (BBG). Tencent began marketing bonds that could raise about 5 billion dollars to fund its AI investment (BBG).

In other news, this article caught my eye: China's debt interest costs are soaring and growing faster than any other major budget category (Fortune). Interest payments will take nearly a fifth of the central government's general budget this year, up from about an eighth in 2014, according to Conference Board estimates, and the IMF puts China's general government debt above the size of its economy (Fortune).

Data and the day ahead: Japan's producer prices fell 0.3% m/m in September, against consensus for a 0.5% rise and matching August's revised 0.3% fall. The annual rate slowed to 6.8% from 7.6%, below the 7.6% consensus. It was the sharpest slowdown since May 2025, reducing the need for a back-to-back Bank of Japan move on 30 October (JapanTimes). Australia's NAB business confidence fell to -13 from -9, and business conditions held at -1. UK like-for-like retail sales rose 1.0% y/y, above the 0.7% consensus and up from 0.5%. Total retail sales rose 1.3% from 0.7%, with households cautious before the 28 October budget (Reuters). Japan's bank lending grew 5.3% y/y, unchanged from August's revised rate. Germany's final September inflation confirmed the flash estimate of 3.3% y/y. US pending home sales fell 4% in September to their lowest since 2014, outside the early months of the 2020 pandemic, as the 30-year mortgage rate rose to 7.4%, according to Redfin data (BBG). The IMF projects global growth slowing this year before picking up in 2027, with inflation peaking this year and easing next year (IMF). Still to come: Fed Governor Christopher Waller speaks at the Bloomberg New Economy Forum at 09:45 CET. The NFIB small-business optimism index is due at 12:00 CET, where consensus looks for 98.2 from 98.7. The Fed's Goolsbee gives podcast interviews at 13:00 and 16:00 CET, and US existing home sales follow at 16:00 CET, with consensus at an annualised 3.95 million from 3.98 million. Richmond Fed President Tom Barkin speaks in a moderated discussion at 19:00 CET. Boston Fed President Susan Collins speaks at a banking conference at 22:00 CET. Later in the week, US CPI on Wednesday at 14:30 CET is the main event, ASML and TSMC report earnings (BBG), and Fed Chair Kevin Warsh joins the IMF's Kristalina Georgieva for a fireside chat on Friday.

Time Stamp: 13 October 2026, 08:16 CET