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(Seoul=Yonhap Infomax) International Economics Department = On the 14th (U.S. Eastern Time), the three major U.S. stock indexes ended mixed in New York financial markets.
While risk-off sentiment eased somewhat, prompting a rebound in tech stocks, gains were pared toward the close. Uncertainty over a potential Federal Reserve rate cut in December and ongoing debate over the depreciation period for graphics processing units (GPUs) weighed on sentiment.
The Nasdaq Composite closed up 0.13%, the S&P 500 was nearly flat at -0.05%, and the Dow Jones Industrial Average fell 0.65%.
U.S. Treasury prices declined for a second consecutive session, with long-dated bonds underperforming and the yield curve steepening (bear steepening). Concerns over the UK government's fiscal discipline triggered a sell-off in gilts, which spilled over into the U.S. Treasury market. However, intraday volatility was significant, with sharp swings seen early in the session.
The U.S. dollar edged higher. As risk aversion subsided during the session and senior Federal Reserve officials delivered hawkish remarks, expectations for a rate cut diminished.
The British pound came under pressure on fiscal concerns after the UK government abandoned plans to raise income taxes. The Taiwan dollar surged after the U.S. and Taiwan agreed not to manipulate exchange rates.
New York oil prices jumped more than 2% as a Ukrainian drone attack disrupted crude exports at a key Russian Black Sea port.
Jeffrey Schmid, President of the Federal Reserve Bank of Kansas City, said at an energy conference, "The current monetary policy stance is somewhat restrictive and is roughly where I think it should be." Schmid was the sole dissenter against a rate cut at the October FOMC meeting.
Lorie Logan, President of the Dallas Fed, stated, "Looking ahead to the December meeting, unless there is compelling evidence that inflation is coming down much faster than I expect or the labor market cools more sharply than its current gradual pace, it will be difficult to support another rate cut."
The U.S. Bureau of Labor Statistics (BLS) is scheduled to release the September nonfarm payrolls report on the 20th.
Equity Markets
On the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed down 309.74 points (0.65%) at 47,147.48. The S&P 500 slipped 3.38 points (0.05%) to 6,734.11, while the Nasdaq Composite rose 30.23 points (0.13%) to 22,900.59.
Indices swung sharply as anxiety over the AI sector clashed with bargain-hunting. The Nasdaq opened with a steep 1.42% drop, and the S&P 500 gapped down 0.97%. Lingering concerns over diminished rate cut expectations and the so-called "AI bubble" continued to dampen investor sentiment.
Debate over the depreciation period for AI infrastructure is intensifying, fueling the AI bubble narrative. As hyperscalers—large-scale tech infrastructure investors—pour massive capital into AI chips, the actual useful life of these chips becomes a key factor for company earnings, corporate bond investors, and lenders. If AI chips must be depreciated faster than expected, earnings forecasts, corporate bond yields, and share prices would all need to be recalculated.
Major hyperscalers such as Google, Microsoft, and Oracle estimate that Nvidia's AI chips and servers can be used for up to six years. However, many believe actual depreciation may occur much sooner. Even Microsoft, in its latest annual report, set the minimum useful life for its computer equipment at two years—far shorter than six.
Michael Burry, the real-life inspiration for the film "The Big Short," has stoked the depreciation debate, prompting a flurry of related articles and analysis on Wall Street. The controversy itself is weighing on the market.
Nevertheless, the session again saw a pattern of bargain-hunting after an initial gap down—a recurring theme in this year's rally.
Brian Mulberry, client portfolio manager at Zach Investment Management, said, "We are alternating between risk-on and risk-off trading. There appears to be a floor to this volatility, and we could see swings of 1–2% through year-end."
By sector, energy gained more than 1%, while materials fell 1.18%.
Among mega-cap tech stocks with market capitalizations above $1 trillion, Nvidia, Microsoft, Broadcom, and Tesla advanced.
The Philadelphia Semiconductor Index, composed of AI and semiconductor-related stocks, plunged as much as 3.39% intraday before paring losses to end slightly lower.
Key Fed officials maintained a hawkish tone. Dallas Fed President Lorie Logan said U.S. inflation remains too high, making it difficult to support a rate cut at the December FOMC meeting. Kansas City Fed President Jeffrey Schmid echoed that the current policy stance is "somewhat restrictive" and appropriate.
Applied Materials, a semiconductor equipment maker, rose 1.25% after reporting better-than-expected fiscal Q4 results.
According to CME FedWatch Tool, the federal funds futures market priced in a 54.2% probability of a rate hold in December, up from 49.9% at the previous close.
The CBOE Volatility Index (VIX) fell 0.17 points (0.85%) to 19.83.
Bond Markets
According to Yonhap Infomax's overseas rates screen (screen no. 6532), as of 15:00 in New York, the 10-year Treasury yield was 4.1480%, up 3.70 basis points from the previous day's 15:00 level. The 2-year yield, sensitive to monetary policy, rose 2.50 basis points to 3.6140%. The 30-year yield climbed 4.40 basis points to 4.7460%.
The spread between 10-year and 2-year yields widened from 52.20 basis points to 53.40 basis points. (Bond yields move inversely to prices.)
Soaring gilt yields pushed up U.S. Treasury yields during European trading. Major foreign media reported that UK Chancellor Rachel Reeves scrapped a planned income tax hike, breaking a Labour Party election pledge. While the Office for Budget Responsibility (OBR) lowered its forecast for next year's fiscal shortfall from £35 billion to £20 billion, most analysts said government credibility had weakened.
Simon Harvey, economist at LB Macro, which advises major hedge funds, commented, "They seem to have said everything necessary to lower gilt yields and align the OBR's outlook, but suddenly found room to reverse policy within the forecast."
Ben Zaranko, deputy director at the UK think tank Institute for Fiscal Studies, said, "This is not a rational way to conduct policy. It could lead to hasty decisions and greater policy volatility."
The 10-year gilt yield jumped 13.87 basis points to 4.5813%. The 30-year gilt yield, which draws more attention during fiscal concerns, surged 16.54 basis points to 5.3986%—the biggest rise since July 2, when Chancellor Reeves' resignation drama shocked the market (+19.02bp).
U.S. Treasury yields briefly reversed lower after the New York open as futures for tech-heavy indexes plunged on AI bubble fears, sparking risk aversion. However, as the Nasdaq rebounded, Treasury yields followed suit, with the 10-year yield dipping to 4.0640% before bouncing back.
Fed officials continued their hawkish rhetoric. Kansas City Fed President Jeffrey Schmid reiterated at an energy conference that the current policy stance is "somewhat restrictive" and appropriate. He was the sole dissenter against a rate cut at the October FOMC meeting.
According to CME FedWatch, as of 15:57 in New York, the federal funds futures market priced in a 45.9% chance of a 25bp rate cut in December, down from 50.1% previously. The probability of a rate hold rose from 49.9% to 54.1%.
Foreign Exchange Markets
According to Yonhap Infomax (screen no. 6411), as of 16:00 in New York, the dollar-yen rate was 154.528 yen, down 0.014 yen (0.009%) from the previous New York close of 154.542 yen. The euro-dollar rate fell 0.00120 (0.103%) to 1.16211.
German public broadcaster Deutsche Welle (DW) reported that the Bundestag's budget committee approved a government plan for €180 billion (about 304.3 trillion won) in new borrowing for 2026—the second-largest on record.
The dollar index (DXY), which measures the greenback against six major currencies, rose 0.097 points (0.098%) to 99.278. The dollar briefly dipped below 99 early in the session as risk aversion intensified, but rebounded as hawkish Fed comments and rising Treasury yields took center stage.
The tech-heavy Nasdaq Composite rose as much as 0.89% intraday. Phil Blancato, CEO of Ladenburg Thalmann Asset Management, said expectations for strong Nvidia earnings are bolstering bargain-hunting.
Kansas City Fed President Jeffrey Schmid said, "We cannot afford to be complacent. Persistent inflation can change price-setting psychology and become entrenched."
Dallas Fed President Lorie Logan reiterated that unless there is compelling evidence of faster-than-expected disinflation or a marked labor market slowdown, another rate cut will be difficult to support at the December meeting.
The dollar index climbed as high as 99.380 intraday on these developments. Bank of America (BofA) noted in a report that "as U.S. data releases resume, volatility in rate differentials will intensify."
The pound-dollar rate fell 0.00175 (0.133%) to 1.31681. The Financial Times (FT) reported that Chancellor Rachel Reeves, who had signaled an income tax hike, has now abandoned the plan. As hopes for plugging the fiscal gap with higher income taxes faded, gilt yields soared and the pound came under pressure, with the pound-dollar rate dropping as low as 1.31230 in New York trading.
Maxime Darmet, chief economist at Allianz Trade, commented, "Relying on spending cuts and higher taxes on the wealthy, rather than income tax hikes, could limit revenue and is unlikely to convince bond investors."
The dollar-Swiss franc rate rose 0.0009 (0.113%) to 0.7939. The U.S. lowered tariffs on Swiss goods from 39% to 15%, and in return, Swiss firms agreed to invest $200 billion in the U.S. by 2028.
The offshore dollar-yuan (CNH) rate rose 0.0026 (0.037%) to 7.1006. The dollar-Taiwan dollar rate plunged 0.2950 (0.949%) to 30.792. The U.S. Treasury and Taiwan's central bank announced, "Both sides will not artificially manipulate exchange rates or the international monetary system to hinder balance of payments adjustment or gain unfair trade or competitive advantage."
Oil Markets
On the New York Mercantile Exchange, December West Texas Intermediate (WTI) crude rose $1.40 (2.39%) to $60.09 per barrel, closing above $60 for the first time in three sessions.
According to Interfax, a Ukrainian drone attack on Russia's Novorossiysk port damaged docked ships, apartment buildings, and oil storage facilities, injuring three crew members. The port, which exports 2.2 million barrels per day—about 2% of global supply—temporarily halted crude exports following the attack.
Phil Flynn, senior analyst at Price Futures Group, said, "The damage to the Russian terminal is significant and appears to have had a greater impact than previous attacks."
Giovanni Staunovo, commodities analyst at UBS, noted, "The intensity of these attacks has increased and they are occurring much more frequently, potentially causing ongoing disruptions."
WTI has risen $0.34 (0.57%) this week, marking its first weekly gain in three weeks.
jwchoi@yna.co.kr
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Note: New York bond market quotes are based on local time at 15:00 and may differ from closing prices. Final closing prices for U.S. Treasuries can be found in the '[U.S. Treasury Yield Electronic Closing]' article released at 07:30.
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