Asia stocks tumble from record highs on profit taking; dollar gains

Highlights:

• Tech drives initial rally, but stock traders cautious after weak US data
• Divergent views among Fed officials cloud outlook for December rate cut
• RBA refrains from rate cut as widely expected, flags inflation concerns

Asian stock markets from Tokyo to Taipei and Seoul tumbled from all-time highs on Tuesday, with investors aggressively booking profits following strong tech-led rallies over recent weeks.

Sentiment was weighed by weakness in US economic data, while a divergence in views from Federal Reserve officials clouded the outlook for a December interest rate cut.

The US dollar rose to a nearly nine-month peak versus the yen, as well as a three-month high against the euro.

Australia’s central bank refrained from lowering rates, as widely expected, and signaled caution about any further easing amid heated inflation.

Overnight, a rally in US tech shares buoyed both the US S&P 500 and Nasdaq, though futures pointed sharply lower on Tuesday, down 0.9% and 1.3% respectively. Pan-European STOXX 50 futures dropped 0.9%.

The catalyst for the latest leg up was Amazon’s $38 billion cloud services deal with ChatGPT creator OpenAI.

“People are turning cautious about these circular transactions around AI, with Nvidia at the centre of everything,” said Tony Sycamore, an analyst at IG.

“It’s concerns about all the capex that’s been spent, without knowing where the revenue is going to come from.”

Japan’s Nikkei added 0.4% to reach a record 52,636.87 early in the day, though it later lost 1.7%.

Taiwan’s TAIEX initially gained as much as 0.8% to set its own record high before sliding 0.8%.

South Korea’s KOSPI tumbled 2.3% following a 2.8% surge on Monday, when it reached an all-time peak.

Hong Kong’s Hang Seng dropped 0.9% and onshore-listed Chinese blue chips slid 1.1%.

Australia’s stock benchmark lost 0.9%, while the Aussie dollar slumped 0.5%.

The US dollar was supported by reduced bets for near-term Fed easing, edging up to 154.48 yen for the first time since February 13, and to $1.1498 per euro for the first time since August 1.

The US dollar index , which measures the currency against the euro, yen and four other peers, topped 100 for the first time in three months.

However, those advances evaporated as traders bought the yen and euro for their haven appeal as stock markets slid.

The polarised views on policy among Fed officials have also become a source of worry for the market, particularly with official economic data still suspended due to the federal government shutdown, leaving investors groping in the dark for clues on US economic health.

Accounts from manufacturers in the private Institute for Supply Management survey on Monday painted a dire picture of the factory sector, showing US manufacturing contracted for an eighth straight month in October as new orders remained subdued.

Fed Governor Stephen Miran on Monday restated the case for deep rate cuts, while Chicago Fed President Austan Goolsbee said he was leery of further reductions while inflation remained significantly above the central bank’s 2% target.

The Fed lowered rates last week but Chair Jerome Powell suggested that might have been the last cut of the year.

Traders are now pricing in a 67.3% chance of a rate cut in December, compared with 90.5% a week earlier, CME FedWatch showed.

Gold failed to benefit from haven flows, as it continued to find its footing following a sharp retreat from a record high in mid-September. Bullion was last down 0.6% at around $3,977 per ounce.

Crude oil prices slipped as markets read OPEC+’s decision to pause output hikes in the first quarter as a signal of oversupply in the market.

Brent crude futures edged down 0.4% to $64.65 a barrel and US West Texas Intermediate crude was off 0.4% at $60.82 a barrel.