[New York Market Watch]Nvidia Caution Spreads, Weighing on Equities; Bonds and Dollar Gain

(New York=Yonhap Infomax) International Economics Department = On the 17th (U.S. Eastern Time), all three major U.S. stock indices closed lower in New York financial markets. Investor sentiment was dampened by concerns over a potential "artificial intelligence (AI) bubble," caution ahead of Nvidia Corp.'s upcoming earnings release, and fading expectations for a Federal Reserve rate cut in December.

U.S. Treasury prices rebounded for the first time in three sessions. The weakness in equities and a rally in UK gilts provided support, though gains were capped by news of a large corporate bond issuance from Amazon.com Inc.

The U.S. dollar strengthened for a second consecutive session. As bets against the yen intensified and the likelihood of a Fed rate hold in December increased, the dollar index (DXY) climbed back to the 99 level. The euro-yen exchange rate hit a record high.

New York oil prices reversed lower after three sessions. News of resumed exports from Russia's key Black Sea port and a risk-off mood in global financial markets exerted downward pressure.

Equity Markets

Near the close on the New York Stock Exchange (NYSE), the Dow Jones Industrial Average ended down 557.24 points, or 1.18%, at 46,590.24.

The S&P 500 fell 61.70 points, or 0.92%, to 6,672.41, while the Nasdaq Composite lost 192.51 points, or 0.84%, to finish at 22,708.07.

Both the Dow and S&P 500 posted their third straight day of declines.

U.S. equities were broadly cautious amid talk of an AI bubble, with investors awaiting Nvidia's Q3 earnings on the 19th and the U.S. September employment report on the 20th.

Concerns over AI tech stocks have been mounting. Michael Burry, famed for "The Big Short," recently took positions that would profit if shares of Nvidia and Palantir Technologies Inc. declined.

Regulatory filings showed that Thiel Macro, a hedge fund run by billionaire Peter Thiel, sold its entire $94 million stake in Nvidia last quarter. This follows continued institutional selling, including from SoftBank Group Corp.

If Nvidia's Q3 results disappoint, investor sentiment could deteriorate further.

Brian Stutland, Chief Investment Officer at Equity Armor Investments, said, "Tech growth stocks are under some pressure right now," adding, "Nvidia's earnings will give us a sense of how much big tech companies are willing to continue investing in Nvidia's products going forward."

Invesco noted in a report, "The correction is concentrated in large-cap growth stocks that led the rally, not because their business models are faltering, but due to skepticism over high valuations."

Ross Mayfield, strategist at Baird, commented, "It's important for Nvidia to confirm that demand for AI products remains robust with no signs of slowing," adding, "The next question is what kind of return on investment (ROI) companies buying these massive chips are actually seeing."

The outlook for a Fed rate cut in December remains uncertain. According to CME FedWatch, as of 16:06 in New York, the federal funds rate futures market priced in a 55.1% chance of the Fed holding rates steady in December, up sharply from 37.6% a week earlier.

The reduced likelihood of further rate cuts this year is seen as a headwind for tech stocks. Fed Vice Chair Philip Jefferson said, "There is a need to proceed slowly" regarding changes in monetary policy.

Dennis Palmer, CIO at Montis Financial, said, "This week will bring more clarity with Nvidia's earnings and the delayed September jobs report, but these events could also fuel further volatility."

The Nasdaq fell as much as 1.49% intraday on these developments. The Philadelphia Semiconductor Index, composed of AI and chip-related stocks, closed down 1.55%.

By sector, financials (-1.93%), energy (-1.88%), materials (-1.53%), technology (-1.43%), and industrials (-1.03%) underperformed. In contrast, communication services (+1.13%) and utilities (+0.84%) posted gains.

Alphabet Inc. (Class A), the parent of Google, rose 3.11% after news that Berkshire Hathaway Inc. held $4.33 billion worth of Alphabet shares as of the end of September.

Conversely, Nvidia (-1.88%), Oracle Corp. (-1.34%), Palantir (-1.59%), and Advanced Micro Devices Inc. (AMD, -2.55%) declined.

Apple Inc. fell 1.82% on reports that CEO Tim Cook could step down as early as next year. Amazon.com Inc., which plans to issue $15 billion in corporate bonds, dropped 0.78%.

The CBOE Volatility Index (VIX) jumped 2.55 points, or 12.86%, to 22.38.

Bond Markets

According to Yonhap Infomax's overseas rates screen (screen no. 6532), as of 15:00, the 10-year U.S. Treasury yield stood at 4.1320%, down 1.60 basis points from the previous day's 15:00 close.

The 2-year yield, sensitive to monetary policy, fell 0.40 basis points to 3.6100% over the same period.

The 30-year yield, the longest maturity, declined 1.00 basis point to 4.7360%.

The spread between 10- and 2-year yields narrowed from 53.40 basis points to 52.20 basis points (bull flattening).

Bond yields and prices move inversely.

In European trading, U.S. Treasury yields fell alongside a rally in gilts. The UK 10-year gilt yield dropped 4.46 basis points to 4.5367%, reversing four days of gains, with mid- to long-term yields falling 4–5 basis points across the curve.

Buying interest emerged after the previous session's sharp yield spike, while news of a significant drop in UK house prices also contributed. According to property portal Rightmove, UK asking prices for homes in November fell 1.8% from the previous month, the steepest November decline since 2012.

Kathleen Brooks, research director at XTB, said the UK October CPI data due on the 19th "will be a key release that could determine whether the Bank of England (BOE) cuts rates next month," adding that lower-than-expected inflation would reinforce the view that the UK economy is slowing and increase the likelihood of a December rate cut.

Early in New York, news of Amazon's bond issuance prompted U.S. Treasury yields to hit intraday lows before paring declines. The benchmark 10-year yield rebounded to as high as 4.1460% at one point.

Amazon, issuing corporate bonds for the first time in three years, plans to sell $15 billion across six tranches with maturities ranging from three to 40 years. Initially targeting $12 billion, Amazon upsized the deal after investor demand exceeded $80 billion.

This marks the fifth-largest investment-grade corporate bond issuance in the U.S. market this year. Nine other companies also tapped the bond market on the day.

U.S. Treasury yields edged lower again as tech stocks extended losses, though moves were limited. Rate futures continued to price in a rate hold next month.

Guy LeBas, chief fixed income strategist at Janney Montgomery Scott, said concerns about AI companies' funding "are having a significant impact, especially in the investment-grade credit market, and that is feeding back into the broader bond market."

According to the New York Fed, the Empire State Manufacturing Index for November rose 8.0 points to 18.7, the highest since November last year and above market expectations (6.0).

After 15:00, comments from Fed Governor Christopher Waller led Treasury yields to widen their declines slightly. Waller said he supports a rate cut next month "from a risk management perspective."

Foreign Exchange Markets

According to Yonhap Infomax (screen no. 6411), as of 16:00, the dollar-yen exchange rate stood at 155.225 yen, up 0.697 yen (0.451%) from the previous New York close of 154.528 yen.

The dollar-yen rose as high as 155.307 yen intraday, the highest since early February.

The euro-yen exchange rate was 179.89 yen, up 0.320 yen (0.178%) from 179.57 yen. The euro-yen briefly topped 180 yen for the first time since the euro's launch in 1999, marking a record low for the yen against the euro.

The euro-dollar rate fell 0.00324 dollars (0.279%) to 1.15887 dollars, dropping below the 1.16 level for the first time in two sessions.

The dollar index (DXY) rose 0.272 points (0.274%) to 99.550, after dipping to around 99.3 in European trading before rebounding.

As the first official meeting between Prime Minister Takaiichi and Bank of Japan (BOJ) Governor Kazuo Ueda approached, yen weakness intensified. According to the Prime Minister's Office, Takaiichi will meet Ueda for the first time since taking office at 15:30 Tokyo time on the 18th.

The dollar-yen crossed the 155 level in New York after news of the meeting schedule. The 155 level is seen as a potential trigger for intervention by Japanese authorities, drawing close market attention.

Takaiichi previously stated at an economic and fiscal policy council attended by Governor Ueda on the 12th that he would cooperate with the BOJ. Takaiichi is set to decide on a large-scale economic package at a cabinet meeting on the 21st.

With the U.S. September jobs report set for release on the 20th and other economic indicators delayed by the government shutdown, caution is rising.

Marc Chandler, chief market strategist at Bannockburn Global Forex, said, "Market participants are just waiting for the next development," adding, "People are watching the September jobs data due later this week."

Within the Fed, views remain divided between caution and support for further rate cuts. Vice Chair Philip Jefferson said at a Kansas City Fed event in Missouri, "While the current policy stance remains somewhat restrictive, it is now closer to a neutral level that neither restrains nor stimulates the economy," emphasizing the need to "proceed slowly" as the balance of risks shifts and the neutral rate is approached.

Later in the session, Governor Christopher Waller reiterated his support for a rate cut next month, citing a still-weak labor market and the need for risk management.

Rate futures continued to price in a majority chance of a rate hold next month, with the probability rising to the mid-50% range.

The pound-dollar rate fell 0.00133 dollars (0.101%) to 1.31548 dollars. The offshore dollar-yuan (CNH) rate rose 0.00820 yuan (0.115%) to 7.1088 yuan.

Oil Markets

On the New York Mercantile Exchange, December West Texas Intermediate (WTI) crude settled down $0.18, or 0.30%, at $59.91 per barrel, falling back below the $60 mark after just one day.

Novorossiysk port, which had suspended exports following a Ukrainian drone attack on the 14th, resumed shipments on the 16th. On the day of the attack, WTI had surged more than 2% on supply concerns.

However, with Ukraine stepping up attacks on Russian oil infrastructure such as refineries and pipelines, market worries persist.

Toshitaka Tajawa, analyst at Fujitomi Securities, said, "Investors are trying to gauge the long-term impact of Ukraine's attacks on Russia's oil exports."

U.S. equities extended losses in the afternoon, led by tech stocks, as investors grew cautious ahead of this week's major events: Nvidia's earnings (19th) and the U.S. September jobs report (20th).

WTI briefly rose nearly 0.6% in the morning but retreated below $60 as the New York stock market came under pressure.

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