By Marc Jones and Wayne Cole
LONDON/SYDNEY, Oct 8 (Reuters) – Global shares slid on Thursday as strains in sovereign bond markets were aggravated by a jump in oil and gas prices and reports that some major tech firms were seeking to raise billions in debt in direct competition for limited funding.
Europe saw renewed selling of French and other heavily indebted countries’ debt [GVD/EUR] plus a near three-month low for the region’s shares early on as a trio of European Central Bank policymakers also issued fresh inflation warnings.
Oil prices were up nearly 4% amid an increase in attacks on shipping in the Gulf, adding to the bond jitters despite a strong auction of US 10-year debt on Wednesday that had pulled back benchmark Treasury yields from 24-year peaks.
While lofty yields underpinned the dollar, the euro struggled near a 17-month low as the concerns over France’s finances continued to spread to Italian and Greek debt, as well as parts of the banking sector.
“Markets are going to be watchful if that contagion continues,” Kiran Ganesh, a multi-asset strategist at UBS Global Wealth Management, said.
“At this stage, the markets would be most comforted by monetary intervention,” he added, referring to the ECB buying bonds to ease the strains. “But I think what we learned in the euro zone crisis in 2011, is that monetary authorities will turn to the fiscal authorities first to get their house in order.”
The steady climb in borrowing costs put equities on the defensive. The pan-European STOXX 600 was down 1% at its lowest since June, while a similar fall from France’s CAC 40 in Paris left it down more than 12% from an August record high.
European banks suffered as well, with the finance index down nearly 2% as Deutsche Bank, Santander, Societe Generale and Unicredit all fell for a second day. [.EU]
Overnight in Asia, Japan’s Nikkei shed 1.4%, South Korea slumped 2.6%, while Wall Street futures had the S&P 500 and Nasdaq pointing to a modestly lower start.
AI DEBT RUSH
In commodity markets, Brent futures rose back above $104 a barrel in their biggest jump in a month, while US crude futures added 3.2% to $91.43 a barrel. [O/R]
The Wall Street Journal added to media reports that SpaceX, Broadcom and Oracle were looking to raise money to buy AI chips.
Broadcom was looking for $50 billion in financing, while SpaceX was planning to issue $30 billion in investment-grade debt and raise $10 billion in loans to buy chips from Nvidia, which is a major shareholder in SpaceX.
The news saw credit default insurance on SpaceX jump to record highs, while its shares and bonds lost ground.
Nigel Green, CEO of deVere Group, warned of a dangerous loop where Nvidia was bankrolling the very customers who buy its products, leaving global investors at risk if the expected profits failed to materialise.
“The AI build-out started on cash,” said Green. “It’s increasingly running on credit, and credit changes the risk profile entirely.”
“Debt has to be repaid on schedule, whether the revenues show up or not,” he added. “And this debt is landing in the bond funds and pension pots of savers right around the world.”
SOVEREIGN BONDS VS CORPORATE DEBT
Still, the fact much of this money will be spent on AI equipment could be positive for earnings in the semiconductor and memory sectors.
Samsung Electronics on Thursday projected a 783% jump in third-quarter operating profit to 107.4 trillion won ($80.17 billion), though its shares lost 2.4%.
TSMC, the world’s largest contract chipmaker, also reported a record third-quarter revenue of T$1.49 trillion ($46.71 billion), up 50% from the year-earlier period although its shares fell 1.35% .
All this corporate debt is coming at a time when sovereign bond markets are being sorely tested by inflation fears, ever-widening budget deficits and rising cash rates.
Minutes of the Federal Reserve’s last meeting released on Wednesday showed “most” members considered another rate hike likely by year-end, though they would approach each meeting with an open mind.
Markets imply just a 19% chance the Fed will move again this month, but are 80% priced for a rise in December.
“We expect a second Fed hike in December, though we see a strong chance the Fed ultimately concludes further tightening is unnecessary,” analysts at Goldman Sachs wrote in a note.
The prospect of a pause in tightening helped keep 2-year Treasury yields at 4.80%, while 10-year yields crept up to 5.33% in European trading, having hit a 24-year top of 5.36% overnight.
Strains in the French bond market led Bank of France head Emmanuel Moulin to acknowledge the country’s economic situation was serious, but said it did not need help from the European Central Bank.
Investors reacted by offloading the euro, which was pinned at $1.1185 after having lost 0.6% on Wednesday. A break of the recent low at $1.1161 would risk a retreat to $1.1065.
The dollar was the main beneficiary of the single currency’s woes and its index rose to 102.34, near an 18-month peak. It was steady on the yen at 158.22, with the Japanese currency protected by the threat of intervention.
Non-interest-bearing gold has suffered as yields climbed, but managed a modest 0.6% bounce to $4,136 an ounce having found bids at two-month lows. [GOL/]
(Reporting by Marc Jones; Editing by Andrew Heavens)
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