Global stocks declined on Thursday, led by a drop in European shares, as bond market pressures escalated due to surging oil and gas prices. This comes as major technology companies, including SpaceX, Broadcom, and Oracle, plan to raise billions of dollars in debt to finance their artificial intelligence ambitions. According to Reuters, European markets witnessed a new wave of selling of French and other high-debt countries' bonds.
The European benchmark, Stoxx 600, approached its lowest level in nearly three months, falling 1% to a 3-month low, while France's CAC 40 index dropped 1% as well, making it over 12% down from its August peak. European banks came under additional pressure, with the sector index declining 2%. Shares of Deutsche Bank, Santander, Societe Generale, and UniCredit fell for the second consecutive day.
The increase in borrowing costs led investors to reduce their exposure to stocks. In Asia, Japan's Nikkei index dropped 1.4%, while South Korea's stock market fell 2.6%. US stock futures indicated a slightly lower opening for the S&P 500 and Nasdaq indices. Oil prices surged, with Brent crude rising above $104 per barrel and US crude gaining 3.2% to $91.43 per barrel.
The pressures in the bond market coincided with reports of major tech companies seeking to raise debt to finance their AI ambitions. Broadcom is looking to secure $50 billion in funding, while SpaceX plans to issue investment-grade debt worth $30 billion and take out loans of $10 billion to purchase chips from Nvidia. This led to a rise in the cost of insuring SpaceX's debt against default to record levels.
The increased borrowing costs and potential defaults have raised concerns among investors. Nigel Green, CEO of deVere Group, warned of a potential risk loop in financing Nvidia for companies buying its products, which could increase global investors' exposure to losses if AI investments do not yield expected returns. He noted that the expansion of AI is shifting from cash to credit financing, altering the risk landscape.
US Treasury yields approached a 24-year high, with the 10-year yield reaching 5.33% during European trading. The rise in yields supported the dollar, while the euro hovered near its 17-month low. Gold, a non-yielding asset, was under pressure but rose 0.6% to $1,936 per ounce after finding support at its two-month low.
The market is now awaiting the Federal Reserve's next move, with most members seeing a possibility of another rate hike before the end of the year. The Fed's minutes from its last meeting showed that officials are prepared to assess each meeting separately. Markets currently price in a 19% chance of a rate hike in October and an 80% chance in December.
Key points
- European stocks fell due to rising bond market pressures and tech companies' plans to raise debt for AI financing.
- US Treasury yields neared a 24-year high, supporting the dollar and pressuring gold.
- The market expects a possible Federal Reserve rate hike before the end of the year.
