Asian stocks in tight range as global rally stalls

Synopsis

Asian stocks showed mixed performance following Wall Street's losses, as an AI-driven rally showed signs of fatigue. Investors are closely watching policy risks, including US investigations into imports and concerns over visa issues affecting Korean investments. Attention is now shifting to upcoming economic data and potential impacts on market direction as October approaches.

Asian stocks traded in a tight range at the open after losses on Wall Street as signs of fatigue crept into the AI-fueled equity rally.

Shares in Japan and Australia edged up while those in South Korea retreated. The S&P 500, Nasdaq 100 and a gauge of global stocks each dropped 0.3% Wednesday, extending declines from the prior day.

An index of US-listed Chinese companies rallied against the downcast mood on Wall Street to climb 2.8%. Equity-index futures for Hong Kong retreated as the city returns to normalcy after Super Typhoon Ragasa. Insurance claims from the typhoon can be $50 million to $100 million, according to Bloomberg Intelligence.

Treasury yields steadied after rising across the curve in the prior session. An index of the dollar edged 0.1% lower after climbing Wednesday. Investors will also focus on the sale of 40-year Japanese government bonds Thursday.

Wednesday’s retreat signaled a breather for an AI-driven surge that has already lifted the S&P 500 about 12% this year as investors rushed to names like Nvidia Corp. That momentum appeared to dissipate Wednesday as traders awaited fresh catalysts amid risks stemming from a labor-market slowdown to sticky inflation.

“Timeout called,” said Craig Johnson at Piper Sandler. “The trend of strong gains isn’t over yet. However, the short-term risk-reward profile is becoming more compressed as stocks extend higher while underlying momentum fades.”

Policy risks were also weighing on markets. South Korea’s prime minister warned that major investment projects in the US will stall until visa issues are resolved, urging Washington to reassure Koreans worried about detentions.

Separately, the administration launched investigations into imports of robotics, industrial machinery and medical devices, a sign President Donald Trump may expand his tariff regime.

Elsewhere, Federal Reserve Bank of San Francisco President Mary Daly said further interest-rate cuts are likely needed, but the US central bank should approach those with caution.

While the S&P 500 has defied September’s gloomy reputation as the worst month for equity returns, the gauge failed to gain traction on Wednesday, sparking concerns the rally has hit an air pocket.

At Bank of America Corp., Savita Subramanian noted that on 19 of 20 metrics, the US equity benchmark is trading at statistically expensive levels.

“In theory, investors pay up for predictable assets and are compensated for uncertainty. Perhaps we should anchor to today’s multiples as the ‘new normal’ rather than expecting mean reversion to a bygone era,” Subramanian at BofA said in a note.

Of course, risks abound, from sticky inflation to the expansion of the US job market moderating.

“The stagflation issue keeps popping its head up every few months,” said Matt Maley at Miller Tabak. Whether Friday’s key price data adds to stagflation fears — or minimizes them — should be important for how the market acts as we move into the month of October, he said.

In commodities, copper prices soared after Freeport-McMoRan Inc. said force majeure was declared on contracted supplies from its giant Grasberg mine in Indonesia. Gold fell 0.7% Wednesday as oil climbed for a second day.

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