ASX set to slide as Wall Street falls; oil at highest since May

When the ASX is “set to slide,” it means traders expect Australian share prices to open lower than where they closed previously. It describes a likely decline, not a guaranteed result. The market can change direction after trading begins as investors respond to new orders and news.

ASX futures are contracts linked to the future value of the sharemarket index. They trade outside normal cash-market hours. In the article, futures at 4.55am AEDT indicated a fall of 19 points, equal to 0.2 per cent, at the open. The ASX had already lost 0.4 per cent on Thursday.

That signal reflected falling US and Asian markets. Wall Street’s S&P 500 dropped 1.3 per cent, while Asian technology-heavy indexes also declined. The futures reading suggested Australian shares could follow that global weakness, although it did not determine the final result for the trading day.

Strong results do not always lift a share price. Investors compare results with forecasts and with the price already built into the stock. AI companies had enjoyed a years-long surge, so markets were demanding exceptional growth. Concerns also grew that borrowing costs could make data centres and AI chips too expensive.

Lam Research reported slightly stronger summer profit and revenue than expected, but its forecast’s midpoint was slightly below analysts’ expectations. Its shares then fell 11.1 per cent. Meta lost 7.4 per cent because profit missed forecasts, despite stronger revenue. Tesla’s profit beat expectations, but its revenue was weaker than forecast, and its shares slipped 2.1 per cent.

Nvidia fell 4.3 per cent as the wider AI trade weakened. Investors were not necessarily rejecting AI’s long-term potential. They were reassessing whether rapid growth, heavy investment and high share prices could continue to justify current valuations, especially while financing costs remain high.

The market moves were broad but uneven. In the United States, the S&P 500 fell 1.3 per cent and the technology-heavy Nasdaq composite dropped 2.4 per cent. The Dow declined only 0.1 per cent, showing that non-technology shares held up better. Asian markets also fell sharply, including South Korea’s Kospi at 3.5 per cent.

Nvidia’s shares dropped 4.3 per cent. That was a smaller percentage decline than some individual stocks, such as Lam Research’s 11.1 per cent fall, but Nvidia had much greater market value. The S&P 500 weights companies partly according to their total market value.

As a result, a move in Nvidia affects the index more than a similar move in a smaller company. The article calls Nvidia the largest stock on Wall Street by total value and the heaviest weight on the S&P 500. Its fall therefore amplified the index’s technology-led decline.

Brent crude is a widely followed benchmark for the price of crude oil. In everyday market reporting, its quoted price represents the value of a barrel of this internationally traded oil. The article uses Brent to show how energy markets were reacting to the conflict and uncertainty.

Brent rose 2.9 per cent to US$111.99 a barrel after reaching its highest level in five months. It had been moving within a US$97 to US$112 range during October. The immediate concern was uncertainty about when the war with Iran would allow the global energy industry to return to normal.

That uncertainty can push prices higher because traders worry about future supply and transport conditions. The oil jump added pressure to global markets already unsettled by falling AI shares. It also mattered for economies and companies because energy is a major business cost, although the article does not provide specific inflation or household-cost figures.

Oil is an input into transport, heating, manufacturing and many supply chains. When its price rises sharply, businesses often face higher fuel and operating costs. Households can also pay more for petrol, energy and goods whose production or delivery uses fuel. These effects can spread beyond the oil market.

The article reports Brent crude rising 2.9 per cent to US$111.99 a barrel. If companies cannot pass higher energy costs to customers, their profit margins shrink. If they do pass them on, prices for goods and services may rise. Airlines, transport operators and energy-intensive manufacturers can be particularly exposed, though the article does not identify individual companies facing those costs.

Higher prices can contribute to inflation and reduce households’ spending power. Central banks and investors may then worry about interest rates staying high, which can further pressure shares. The article focuses on market reaction rather than measuring these consequences, so their size cannot be determined from the supplied text.

Technology companies often need large amounts of money before new data centres or AI services generate returns. When borrowing becomes more expensive, interest payments rise and projects require more revenue to succeed. Investors may also become less willing to fund rapid expansion if the financial risk increases.

The article says AI companies face worries about the cost of borrowing money to build data centres and buy more AI chips. CoreWeave, which borrowed to buy Nvidia chips and rent them to cloud customers, was especially shaky because of debt concerns. Higher financing costs can therefore pressure both the company making the investment and the company using borrowed money to expand.

High interest rates can also make future profits look less valuable today. That can challenge share prices built on years of expected growth. The article says AI stocks may simply have risen too far, even while companies continue reporting growth. Investors were therefore questioning whether that growth justified the prices and debt involved.

Government bonds are debt issued by governments. Investors often seek them when shares become more volatile because they want an asset viewed as safer and more predictable. This is sometimes called a move to safety. It does not mean bonds have no risks, but demand can increase when confidence in stocks weakens.

The article links Thursday’s sharp fall in US Treasury yields to investors buying government bonds as AI stocks tumbled. The yield on the 10-year Treasury dropped to 4.98 per cent from 5.13 per cent late Wednesday. In bond markets, prices and yields generally move in opposite directions: stronger demand raises prices and lowers the return implied by the bond.

The decline was significant, even though the 10-year yield remained above its 3.97 per cent level before the war with Iran. It showed that investors were seeking protection despite worries about US debt, inflation and the economy. Bond buying can therefore offset some pressure from falling shares while signalling caution.