Most Asian stocks rose on Friday, after technology stocks fell the previous day, while the Indonesian stock market tumbled following a warning that the country's credit rating might be downgraded, raising growing concerns about capital outflows.
Index provider MSCI warned of the possibility of downgrading Indonesia from an emerging market, raising concerns about capital outflow from the country.
US stock futures rose slightly after Federal Reserve Chairman Kevin Warsh said that the artificial intelligence shock could bring significant benefits to the US and global economies, according to the Associated Press.
The South Korean KOSPI index jumped by 3.6 percent, after falling by 7.6 percent the previous day, affected by the decline in shares of artificial intelligence companies. Samsung Electronics shares rose by 4.2 percent, while shares of SK Hynix, which specializes in manufacturing memory chips, rose by 3.5 percent.
In Japan, the Nikkei 225 index rose by 1.9 percent to 65,658.59 points, after falling by 4.9 percent the previous day. The shares of SoftBank Group, which invests in Open AI, rose by 1.7 percent, and the shares of Tokyo Electron, which specializes in manufacturing chip production equipment, rose by 2.8 percent, and the shares of Kioxia Holdings, which manufactures memory chips, rose by 3.2 percent.
The rise in shares of Asian technology companies came after losses in artificial intelligence stocks in the United States diminished.
On Friday, during the meetings of the International Monetary Fund and the World Bank in Bangkok, Warsh stated that artificial intelligence may have broad positive impacts on global economies.
He said: “I believe that the emergence of this new technology is probably the most important transformation that the American and global economies will witness in my lifetime. “I believe it has tremendous benefits for the global economy and the American economy in the long term.”
In Taiwan, the TAEX index rose by 0.6 percent, benefiting from the artificial intelligence boom. On the other hand, Taiwan Semiconductor Manufacturing Company's shares fell by 0.4 percent, despite announcing record quarterly profits on Thursday and confirming the continued strength of demand related to artificial intelligence.
In Indonesia, the Jakarta Composite Index fell by more than 10 percent, recording its lowest levels in years, after MSCI announced that the country’s continued classification as an emerging market “is no longer appropriate.”
In Hong Kong, the Hang Seng Index rose by 1.2 percent to 24,353.69 points, while the Shanghai Composite Index rose by 1 percent to 3,742.66 points.
In Australia, the Standard & Poor's - ASX 200 index rose by 1.1 percent to close at 8,812.90 points, while the Indian Sensex index recorded slight gains of 0.2 percent.
On Wall Street on Thursday, the Standard & Poor's 500 index rose 0.3 percent, the Dow Jones Industrial Average rose 1.1 percent, while the Nasdaq Composite Index, which is dominated by technology stocks, increased 0.1 percent.
Losses in shares of artificial intelligence and electronic chip companies decreased during the session. The shares of the American company CoreWave, which specializes in cloud computing services for artificial intelligence, declined by 9.5 percent in early trading, before rising again and ending the session with gains of 5.9 percent. On the other hand, Nvidia shares closed down by 1.8 percent, after falling by 3.8 percent during the session. Broadcom shares also fell by 0.6 percent, and AMD shares fell by 1.5 percent.
Oil prices stabilized at high levels, in light of continued pressure on global supplies and the failure to reach an agreement between the United States and Iran to end the conflict.
In this context, the International Energy Agency announced on Thursday that member states had agreed to release the remaining quantity, amounting to about 100 million barrels of oil, as part of the pledge announced in March, explaining that the total quantities offered would exceed 400 million barrels, which was the volume that was originally planned.
The price of Brent crude, the global oil standard, fell by 0.4 percent to $105.46 per barrel, but remained much higher than its level of about $72 in late February, before the outbreak of war.
Oil prices still enjoy strong support in light of the uncertainty surrounding developments in the Middle East and fears of disruption to oil flows through the Strait of Hormuz. Warren Patterson and Eva Manthey, commodities strategists at ING Bank, said in a commentary on Friday that the market is pricing in a “significant risk premium.”
In the currency markets, the US dollar fell to 157.83 Japanese yen, compared to about 158 yen, while the euro rose to 1.1228 dollars, compared to 1.1220 dollars.
US Federal Reserve Chairman Kevin Warsh avoided giving signals about the path of interest rates, only emphasizing the bank's commitment to achieving price stability, which prompted market bets on raising interest at the October meeting to decline to less than 15 percent, compared to about 27 percent before his statements. On the other hand, Warsh expressed optimism about the flexibility of the US economy, praising the ability of the global economy to withstand geopolitical shocks, despite inflationary pressures and tightening monetary policies.
During a dialogue with the Director General of the International Monetary Fund, Kristalina Georgieva, during the annual meetings of the International Monetary Fund and the World Bank in Bangkok, Warsh refrained from providing new assessments regarding the prospects for the American economy or clarifying his monetary directions, only emphasizing that the Federal Reserve will continue to work to achieve price stability.
Warsh said: “We made it very clear that we will achieve price stability, and we reduced the degree of monetary easing about a month ago,” referring to raising interest rates in September. He added: “I do not anticipate the results of the meetings, and I do not believe in disclosing now what I might do in the remaining meetings during this year.”
Warsh's statements were reflected in investors' expectations regarding the next meeting of the Federal Reserve, scheduled to be held on October 27 and 28, as the odds of raising interest, according to market pricing, decreased from about 27 percent before his speech to less than 15 percent after it.
The gains extended to US stocks, while the dollar fell slightly. Standard & Poor's 500 futures turned 0.2 percent higher, after recording losses of 0.6 percent earlier in the session.
The Federal Reserve raised interest rates by a quarter of a percentage point in September, the first increase since 2023, and the decision was supported by all 19 members of the Monetary Policy Committee. The majority of policymakers also felt that another increase may be necessary before the end of the year.
In recent weeks, a number of bank officials reiterated that continued inflationary pressures may require further rate hikes, but at the same time they stressed the need to collect additional economic data before making a new decision.
Pointing out that inflation represents a “common challenge,” Warsh explained that central banks around the world have implemented “a simultaneous tightening of monetary policies, which means that no party is exempt from this trend.”
Artificial intelligence supports growth and increases demand
In addition to monetary policy, Warsh discussed the impact of artificial intelligence on the economy, describing it as the most important innovation that the global economy has witnessed during his lifetime, but he warned that the impact of technology in increasing demand may precede the appearance of its productivity gains on the supply side.
He said that artificial intelligence is currently affecting the demand side before its full effects appear on the supply side, adding that monetary policy makers must treat this shift as an economic shock that calls for cautious evaluation, given their responsibility to achieve price stability and maintain full employment.
Warsh explained that he takes this technology seriously, but also “with a degree of sobriety and responsibility,” indicating the need to balance opportunities to raise productivity with potential risks to inflation in the short term.
These concerns are related to the acceleration of investments in artificial intelligence and related infrastructure, amid questions about whether the spending boom may increase pressure on demand and push the economy towards growth levels that exceed its production capacity in the near term.
Optimism about the strength of the American economy
In his assessment of economic activity, Warsh expressed optimism about the ability of the American economy to continue growth, noting that its strength does not depend on investments in artificial intelligence alone, but is also based on broader investment activity in other sectors.
He believed that these investments provide strong support factors for economic activity and help enhance the sustainability of growth, although this momentum does not appear to the same degree in all economies.
He also expressed his astonishment at the ability of the global economy to withstand the geopolitical developments and crises that various regions witnessed during the past months, considering that this flexibility was greater than what he expected five or six months ago.
Warsh said that economies face common challenges and are taking measures to deal with them, describing this as a positive development. He added that he expects the United States to emerge from the current stage with a stronger, more sustainable economy and the ability to lead global growth.
The dollar fell on Friday, heading towards recording its first weekly decline in five weeks, allowing the euro to recover from its lowest level in 17 months. This came in light of the turmoil affecting artificial intelligence investments and the decline in US bond yields, which limited the gains achieved by the dollar recently.
Shares of artificial intelligence companies witnessed a sharp decline this week, while pressure extended to parts of the credit market. Investors, who have pumped money into various parts of the artificial intelligence supply chain, are concerned that data center operators may not be able to make enough profits in time to repay their debts, according to Reuters.
These fears prompted investors to flock to US Treasury bonds, at a time when the yield on ten-year bonds is heading to record its largest weekly decline in more than a year, coinciding with the decline of the dollar, which had previously received support from the artificial intelligence boom and its positive impact on the US economy.
The dollar remained under pressure during Asian trading, falling to 157.85 yen, recording a weekly decline of about 0.3 percent. It also lost a similar percentage against the euro during the week, with the price of the single European currency reaching $1.1226 on Friday.
This improvement came at an appropriate time for the euro, which lost more than 3 percent of its value against the dollar during the past five weeks, amid concerns about worsening French debt and the possibility of an energy supply crisis during the winter.
With investors concentrated heavily in dollar buying positions, continued turmoil in the artificial intelligence sector may lead to the liquidation of these positions, which will increase pressure on the US currency and push it to decline further.
In this context, Brent Donnelly, President of Spectra Markets, said: “The dollar’s reaction to a serious reassessment of the capital spending boom in the field of artificial intelligence will be clearly negative for the US currency.”
He added: “If markets begin to take into account the possibility that capital spending on artificial intelligence will peak, the dollar will become a target for selling. The entire American economy appears to be based on only one pillar, which is the artificial intelligence sector.”
The dollar index, which measures the performance of the US currency against a basket of six major currencies, reached 101.89 points, heading towards recording a weekly decline of 0.2 percent.
The pound sterling rose slightly to $1.3303, achieving weekly gains of 0.5 percent, supported by data showing the British economy grew by 0.1 percent in August, contrary to expectations.
The New Zealand dollar also rose 0.5 percent to $0.5655, recording weekly gains of 0.7 percent.
As for the Australian dollar, it rose slightly to $0.6946, but recorded a weekly decline of 0.5 percent against the US dollar, contradicting the general trend. This performance came after the release of unexpected data showing weakness in the Australian labor market on Thursday, which prompted markets to reduce their expectations about the possibility of an additional hike in interest rates.
At the annual meeting of the International Monetary Fund in Bangkok, Kevin Warsh, an official at the US Federal Reserve, did not provide any significant indications about the path of monetary policy, only pointing out that global conditions have generally developed in line with expectations since the Federal Reserve’s meeting in September.
The Chicago Mercantile Exchange's Fed Watch tool showed that traders are 72 percent likely to keep interest rates unchanged later this month, compared to 53 percent a month ago.
Expectations for raising interest rates rose sharply following the release of consumer price index data, which came stronger than expected this week, but fell again after Federal Reserve officials indicated the possibility of the central bank waiting to obtain more clarity before making its decision at the next meeting.
Sim Moh Siong, strategist at OCBC Bank, said: “Estimates indicate that an extended correction in financing for the artificial intelligence sector may hinder the boom witnessed by the sector, which in turn may affect economic growth in the United States.”
