AI Tech Rally Falters: Global Markets Drop Amid Fed Rate‑Hike Concerns
Market Turmoil and Economic Reactions
A preview of today’s European and global market outlook by Rae Wee
Asian Tech Stocks Slump as AI Rally Reverses
On Monday, a sharp selloff swept through Asian technology stocks as investors curtailed the red‑hot AI rally, prompting a drop of more than 8% in South Korea’s KOSPI, which triggered circuit‑breaker mechanisms.
Wall Street Shakeout and Federal Reserve Rate‑Hike Expectations
These moves followed last week’s Wall Street shakeout, triggered by a robust U.S. jobs report that heightened expectations for Federal Reserve rate hikes — a challenging environment for growth‑oriented stocks.
Market participants now assign a greater than 70% probability that the Fed will raise rates in December, up from roughly 45% a week earlier, according to the CME FedWatch tool.
Influence of the U.S. Jobs Report and Technology Earnings
Friday’s nonfarm payrolls report arrived shortly after Broadcom’s disappointing results last week, which caused its stock to tumble and pulled down shares of other technology firms.
Yet this reflects the cost of elevated expectations — even a modest shortfall can trigger a substantial market impact.
Analyst Views and Market Correction
Analysts and investors have largely characterized the recent selloff as a healthy correction, noting that concentration risks and leveraged positions are magnifying price swings, though the duration of the decline remains uncertain.
Currency Markets and Economic Data
Elsewhere, the dollar rose to a two‑month high, bolstered by expectations of Fed rate hikes and continued U.S. economic resilience.
The stronger dollar pressured the yen into deeper intervention territory, prompting investors to watch for additional yen‑buying measures from Tokyo to curb its decline.
Japan’s Economic Momentum and Data Releases
Revised gross domestic product data released on Monday indicated that Japan’s economy lost momentum in the January‑March quarter compared with the prior three months, reflecting weak capital expenditure.
Monday’s data calendar is sparse, but the upcoming week will be marked by the massive SpaceX listing, U.S. inflation figures, and a European Central Bank policy meeting.
Geopolitical Tensions and Key Events
The Middle East conflict continues, with Israel reporting strikes on military targets in western and central Iran on Monday, despite reports that U.S. President Donald Trump advised Prime Minister Benjamin Netanyahu to halt further attacks.
Key Developments to Watch on Monday
Key market‑influencing developments expected on Monday include:
- Boeing to release May numbers for deliveries and orders
- Global airline CEOs gathering for an event in Rio de Janeiro
- France: Reopening of 3-month, 4-month, 6-month and 11-month government debt auctions
- Germany: Reopening of 5-month and 11-month government debt auctions