GLOBAL MARKETS: Tech shares sank, yen rose and bonds surge

SINGAPORE- Tech shares slumped on Friday, while the yen was steady and bonds surged toward their biggest monthly gain in nearly three years, as investors scurried to safety from worries that huge and rising AI spending may not deliver sufficient returns.

Shares in Google parent Alphabet GOOGL.O fell 12.6% on Wall Street and slid a little further after hours, to wipe out a stunning $500 billion in market value, as massive AI spending turned the company's cash flow negative.

An aftermarket plunge of 23% in Intel shares INTC.O and a drop of 7% in Amazon AMZN.O stocks, as they too burn through cash, drove Nasdaq 100 futures NQc1 down 1.9% and sent stocks of chipmakers around Asia into a tailspin.

European stock futures STXEc1 were down 0.5% as the sombre mood spread to Europe in a week where earnings from big tech firms have raised the stakes in the AI trade.

Investors are worried that the infrastructure race for the AI buildout is not only straining the industry but also affecting consumers, as price hikes squeeze global demand for devices like smartphones and PCs.

"The market isn't necessarily questioning whether the AI buildout can be financed," said Pepperstone analyst Chris Weston. "It's increasingly questioning whether shareholders will earn an adequate return on the enormous capital being deployed."

In Asia, South Korea's KOSPI .KS11 fell more than 3%, for a total fall of nearly 16% in October. Japan's Nikkei .N225 fell over 2%, on course for a decline of 5% this month.

Nerves were also frayed by a potentially record-breaking hack at Binance, the world's biggest cryptocurrency exchange, which drove down bitcoin BTC=, other cryptocurrency prices and stocks including rival exchange Coinbase COIN.O.

The world's biggest cryptocurrency, bitcoin, hit a six-week low before cutting losses to trade 0.9% lower at $78,171.16.

"I suspect the negative price action still has some way to go," said Geoffrey Kendrick, head of digital assets research at Standard Chartered. "Only after assets are unfrozen and more detail of the hack emerges will we find a new base."

NO SURPRISE FROM BOJ

The Bank of Japan left interest rates on hold, which was expected and did not trigger major currency or bond moves, but Nikkei futures slipped after the central bank unveiled plans to sharply accelerate exchange-traded fund sales next year.

"While this may initially spook markets, I actually think this is a positive development since the BOJ feels confident enough with the economy and market," said David Chao, global market strategist for Asia-Pacific at Invesco.

The central bank declared victory in a nearly 14-year battle to hit its price target and signalled vigilance against inflation risks, suggesting the next rate hike could come as soon as December.

In China, the blue-chip CSI300 .CSI300 headed for its largest monthly fall in a decade, after nearly four months of AI stocks tanking on fears that a slowdown in demand for chips and other data centre equipment could crush revenues.

Investors' rush into bonds was further spurred by the Federal Reserve's Wednesday decision to keep US interest rates on hold, with no firm projection of when it might hike next.

Benchmark 10-year US Treasury yields US10YT=RR fell by more than 7 basis points in Tokyo trade on Friday to 4.91% for a fall of some 37 bps through October — the largest one-month drop since December 2023.

Two-year yields US2YT=RR dropped by more than 8 bps to 4.57% and Fed funds futures rallied as investors dialled back some expectations for US rate hikes. Yields fall when bond prices rise.

The risk-averse mood strengthened haven currencies such as the yen and Swiss franc, with the yen JPY=slightly higher at 157.20 per dollar and the franc CHF= at 0.8213 to the dollar and not far from a one-month high.

The euro EUR= inched up 0.1% to $1.1194 but was set for a drop of over 1% in October, its second straight monthly decline.

In commodities, oil prices rose on Friday, poised for a fourth monthly gain, as an attack on a tanker in the key Strait of Hormuz waterway highlighted continuing supply risks from the US-Israeli war on Iran. O/R

- Tom Westbrook and Ankur Banerjee; Editing by Tom Hogue,Clarence Fernandez and Stephen Coates/Reuters