[10/14] Today's Financial Markets in 3 Minutes | AI Semiconductor Stock Sell-off Continues. Interest Rates Fall Ahead of US CPI, Dollar-Yen in the 158 Range

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In the financial markets on the 13th, while the sell-off of AI and semiconductor-related stocks expanded globally, falling long-term interest rates in the US provided support for the stock market. Following reports of technological progress by Chinese memory semiconductor manufacturer CXMT, the South Korean KOSPI plunged by 5.5%. The Nikkei Stock Average also fell by 1,253 yen (1.82%) from the previous business day to 67,777 yen, but the TOPIX managed a slight gain of 0.14%, highlighting a clear selective sell-off centered on semiconductor-related stocks.

Meanwhile, in the US, expectations for additional interest rate hikes receded following comments from Fed officials, and the US 10-year Treasury yield fell to the 5.21% level. Although the dollar-yen briefly dipped below 158 yen, it subsequently recovered to the 158 yen range. The release of the US September CPI is scheduled for today, and the focus will be on whether expectations for the Fed to hold off on a rate hike at the October FOMC meeting will strengthen.

🌶️ Today’s HOT Points

📉 ① Adjustment in AI semiconductor stocks accelerates. What the contrast between the Nikkei and TOPIX indicates

In the Asian stock markets on the 13th, the sell-off of semiconductor-related stocks intensified, with the South Korean KOSPI plummeting by 5.5%. Memory-related stocks such as SK Hynix and Samsung Electronics saw significant declines. The backdrop includes reports that Chinese DRAM giant CXMT plans to announce server-oriented memory products adopting the new “4F²” cell structure within the year. Concerns have spread that the technical catch-up by Chinese players could undermine the pricing power and profitability of South Korean and US manufacturers that have enjoyed the benefits of expanding AI demand until now.

In the Japanese market, while the Nikkei Average fell significantly by 1.82% to 67,777 yen, the TOPIX ended in positive territory at +0.14%. While high-priced semiconductor-related stocks pushed the Nikkei down, financial and domestic demand-related stocks remained relatively firm, showing a divergence between the indices. In the US market, the Nasdaq Composite fell by 0.59%, while the S&P 500 remained almost flat at 7,805 points, and the Dow Jones Industrial Average saw a slight gain. With strong earnings from Goldman Sachs confirmed in the July-September quarter results of major US banks, buying interest was also seen in sectors other than semiconductors.

What is noteworthy about this stock price decline is that it is not that AI demand itself has plummeted, but that expectations for future profit growth are beginning to be revised due to changes in the competitive environment. Memory semiconductors are susceptible to supply-demand cycles, and if the expansion of supply capacity leads to price declines, current high profitability may not be sustainable. Going forward, it will be necessary to assess not only CXMT’s actual mass production capacity but also the earnings outlooks of existing major players and the impact on HBM demand.

💵 ② Dollar upside remains heavy due to falling US interest rates. Focus on US CPI and BOJ’s expected rate hike pause

In the US Treasury market on the 13th, buying was centered on long-term bonds, with the US 10-year Treasury yield falling about 3bp from the previous business day to the 5.21% level, and the 30-year bond yield also falling to around 5.56%. While maintaining the view that one additional rate hike within the year is appropriate, NY Fed President Williams denied the need for additional rate hikes for 2027. Additionally, Fed Governor Waller pointed out that the rise in long-term interest rates is curbing demand for housing and automobiles, playing a partial role in monetary tightening. Following these remarks, expectations for future rate hikes receded, and the dollar was generally soft.

The dollar-yen briefly dipped below 158 yen during London hours but subsequently recovered to the 158 yen range. The closing price on the 13th was around 158.3 yen. It is said that a cumulative total of over 80bp of additional rate hikes toward 2027 is priced into the market, and depending on future economic indicators, there is room for the unwinding of rate hike expectations to lead to a weaker dollar. In the US September CPI to be released today, it is particularly important whether the month-on-month growth rate of the core index settles around the market expectation of +0.2%. If a slowdown in inflation is confirmed, expectations for the Fed to hold off on a rate hike at the October FOMC meeting could strengthen further.

Meanwhile, in Japan, Bloomberg reported that it is highly likely the Bank of Japan will hold off on a rate hike at its October meeting. Although inflation expectations among companies and households remain high in the September Tankan survey and the survey on lifestyle consciousness, no further acceleration has been confirmed, and it appears that the need to rush into consecutive rate hikes is judged to be low. However, there is no change in the recognition that the underlying inflation rate is approaching the 2% target, and the path toward normalization of monetary policy is expected to be maintained. With the possibility of both the US and Japan holding off on October rate hikes being recognized, the direction of the dollar-yen is likely to be swayed by changes in market pricing regarding the future pace of rate hikes.

🛢️ ③ WTI rises to the 94 dollar range. Risk that Middle East supply anxiety will hinder inflation slowdown

WTI crude oil futures (November delivery) on the 13th ended at 94.14 dollars per barrel, up 0.4% from the previous day, and rose to as high as 95.11 dollars during the day. Following an attack by Saudi Arabia on oil facilities in Sana’a, Yemen, the Houthis suggested retaliatory attacks on Saudi Aramco’s oil facilities. Military exchanges surrounding energy facilities are intensifying, and concerns that this will cause disruptions in crude oil supply are pushing up prices.

While high crude oil prices support the earnings of oil-producing countries and energy-related companies, for importing countries, they lead to rising prices and increased corporate costs. Especially in the US, if rising energy prices push up inflation expectations, it could make it difficult for the Fed to hold off on additional rate hikes. Currently, although US interest rates are falling following comments from Fed officials, if high crude oil prices persist, it is likely to become a tug-of-war between expectations for slowing inflation and upward price pressure due to geopolitical risks.

Also, in Europe, instability in the government bond market against the backdrop of fiscal and political risks in France remains a cause for concern. However, on the 13th, there was a certain degree of calm in market sentiment, such as the narrowing of the yield spread between French and German government bonds. ECB Executive Board member Lane has mentioned the tightening of financial conditions due to the AI boom and rising bond yields, and it is believed that the ECB is also in a position of not rushing into additional rate hikes. With the possibility that prolonged monetary tightening in both the US and Europe will curb the economy being recognized, high crude oil prices are making the judgment of monetary policy even more complex.

👀 Today’s Focus | Will the US CPI change the trend of a strong dollar and weak stocks?

The biggest focus today is the US September CPI. If the core CPI remains around the market expectation of +0.2% month-on-month, expectations for the Fed to hold off on an October rate hike will strengthen, and a reaction toward lower US interest rates and a weaker dollar is expected. On the other hand, if the persistence of upward price pressure is shown due to the impact of high crude oil prices, rate hike expectations could rise again, and US long-term interest rates and the dollar could rebound.

In the stock market, the focus is on whether falling interest rates will provide support for semiconductor-related stocks. However, since this semiconductor stock decline also has unique factors such as intensifying competition with Chinese players, even if the CPI comes in lower than expected, it does not necessarily mean that AI-related stocks will rebound uniformly. It seems necessary to consider the overall market interest rate environment and individual company earnings outlooks separately.

🌶️ Today’s 3-Minute Summary

• Equities: Semiconductor stocks fell globally following reports of technological progress at China’s CXMT. While the Nikkei 225 dropped 1.82%, the TOPIX rose 0.14%, highlighting selective selling of AI-related stocks.

• Forex/Interest Rates: Following comments from Fed officials, the US 10-year Treasury yield fell to the 5.21% level. The dollar-yen pair is hovering around 158, with today’s US CPI in focus.

• Crude Oil: WTI rose to $94.14 due to supply concerns stemming from the exchange between Saudi Arabia and the Houthis. The risk of reignited inflation is increasing uncertainty in monetary policy.

In the current financial market, concerns over the competitive environment for AI-related stocks are intersecting with receding expectations for additional Fed rate hikes. Whether the entire stock market will collapse or if capital will simply rotate from AI-related stocks to other sectors remains to be seen. The reaction of interest rates and the stock market to today’s US CPI will likely be a key indicator for determining future direction.

Financial markets, in 3 minutes for busy people.

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