Stocks slid on Thursday after disappointing earnings at U.S. cloud computing giant Oracle sounded a warning for AI profitability, while bonds were firm and the dollar nursed losses after the Federal Reserve cut U.S. interest rates. Oracle (ORCL.N), opens new tab shares tumbled more than 11% after hours, dragging S&P 500 futures 0.9% lower and Nasdaq 100 futures down 1.3% in Asia trade.
AI-related stocks were the biggest losers in Tokyo, as Oracle's profit and revenue outlook missed forecasts and executives flagged higher spending - a sign infrastructure outlays are not turning profits as quickly as investors had hoped.
Japan's Nikkei (.N225), opens new tab fell 1% with a 7.5% drop in the AI-exposed SoftBank Group (9984.T), opens new tab, a partner with Oracle on the U.S. Stargate data centre project, dragging on the index. Hong Kong's Hang Seng (.HSI), opens new tab rose just 0.06%, leaving MSCI's broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS), opens new tab down 0.5%. "The initial positive tone from a Fed cut...is being overshadowed by Oracle," said ANZ's Head of Asia Research Khoon Goh. "The focus is mainly on the capex spend," he said, which revived last month's nerves about returns on AI investment.
Overnight the Fed lowered its benchmark funds rate, as expected, by 25 basis points to 3.5% to 3.75%.
But Fed Chair Jerome Powell sounded balanced on the outlook at a press conference, easing market nerves about a hawkish message. Wall Street indexes rallied after the rate cut, and the S&P 500 (.SPX), opens new tab rose about 0.7%.
"I don't think a rate hike is anyone's base case," Powell said. That left interest rate futures with at least two rate cuts priced in for next year and undercut the dollar, which helped to send the euro through chart resistance and above $1.17. Bonds caught a further boost as the Fed also announced it would start buying short-term Treasuries as soon as Friday to support liquidity. Benchmark 10-year yields fell about 3 basis points to 4.13% and two-year U.S. yields are down around 4 basis points at 3.52%.
Money markets had been volatile in recent weeks, leading to a premium on short-term rates as liquidity was stretched.
"The Fed doesn't have a lot of appetite for that sort of thing to continue because it inhibits the transmission of monetary policy," said ANZ Senior Rates Strategist Jack Chambers.
In foreign exchange markets, trade and risk-sensitive currencies such as the Australian and New Zealand dollars slipped in the Asia session, but the yen was firm with eyes on next week's Bank of Japan meeting where a hike is expected.
The yen has reversed a recent fall and rose to 155.62 per dollar in Asia trade on Thursday. The euro struck a two-month high of $1.1707, enjoying an extra boost from comments by European Central Bank President Christine Lagarde that another upgrade in European growth projections was possible.
"The next big cue will be the November (U.S.) non-farm payrolls release on 16 December and whether a soft number can keep market pricing of two further rate cuts in 2026 intact," analysts at ING said in a note.
