By Jamie McGeever
ORLANDO, Florida, Oct 14 (Reuters) - US stocks fell sharply on Wednesday, with the Nasdaq clocking its biggest fall in three months, on surprisingly strong inflation data and deepening worries over the costs involved in financing the AI buildout. The inflation figures put a Fed rate hike later this month back on the table, which lifted the dollar to a fresh 18-month high.
Today's Key Reads
• US inflation heats up in September; Fed rate hike this month back on table
• IMF calls for US
to cut deficits amid bond woes, urges China to shift away from exports
• Why governments might secretly wish for an AI stumble: Mike Dolan
• As Wall Street banks finance and adopt AI, risks mount on both fronts
• Bond trading weakens for US banks as interest rate volatility affects investors
• Today's Key Market Moves STOCKS: Asia in the red, China -1%. Europe +0.4%, UK +0.7%. Americas in the red: Nasdaq -1.9%, S&P 500 -1.1%.SECTORS/SHARES: Eight sectors on the S&P 500 fall, three rise. Tech -2.6%, healthcare and consumer staples +2.4%. "SOX" chip index -4.2%, down for sixth day, longest losing streak in nearly two years. Coreweave -15.5%, Dell -11%, Oracle and Marvell -9%. UnitedHealth, Moderna, Bristol-Myers Squibb all up 4-5%.FX: Dollar up strongly again, new 18-month high. Mexican peso, South African rand among the biggest EM FX decliners, euro, sterling, Swedish crown the biggest G10 losers.BONDS: US AI-related corporate bonds fall sharply, many to new lows. Yields rise, spreads widen. Longer-dated US Treasury yields fall 3-4 bps, curve flattens.COMMODITIES/METALS: Oil up, WTI +1%. Gold -1%, silver -6.5%.
Today's Talking Points:
AI bond blues
Investor sentiment towards AI financing — or more pointedly, circular financing — is souring. Rapidly. Coreweave's 9.75% bond issued in July and maturing in 2031 on Wednesday yielded 16% and slumped to a new low in price. Meta's "Beignet Investor" bond maturing in 2049 is also hovering around its lows, and both bonds are down around 20% from issue. Oracle's 4.9% bond maturing in 2033 registered a record low today. You get the picture.
Borrowing costs and spreads are spiraling higher, which deepens investors' concerns, risking further selling and intensifying the negative feedback loop. What stops the rot? In the near term, strong earnings and positive outlooks from CEOs and CFOs in the coming weeks might help. But if selling pressure on AI-related bonds and stocks persists, are we ultimately looking at some sort of intervention?
Raising the stakes
Talking of which, it's not unreasonable to think that the US government will end up taking stakes in some of the country's biggest AI/tech companies, either due to national security concerns, safety issues, or because they are simply "too big to fail". Or all of the above. As the battle with China for global AI dominance intensifies, the importance to Washington of the key US players is only going to increase.
In fact, the Trump administration is already flexing its muscles in the private sector, most notably via its stakes in the US Steel/Nippon Steel partnership and Intel. According to the Cato Institute, the US government has done 35 equity-stake deals since June 2025. Prior to that, US equity deals were unheard of in non-crisis times, notes Cato's Scott Lincicome. Of these 35 deals, 11 are in semiconductor companies, and 9 are in quantum computing firms. The focus and direction of travel seem pretty clear.
China's clear direction
If there were any lingering doubt about how policymakers in Beijing are trying to generate China's economic growth, the latest trade data should put them to rest. Surging exports widened China's trade surplus more than expected in September, putting the country on track for another $1 trillion annual surplus, and in record time too. The external sector is booming, while the domestic economy remains shackled by subdued demand and investment.
AI was a central part of the trade figures, as global demand for semiconductors and green-tech products boosted exports, and its place in US-China fault lines is becoming increasingly stark, fueling record Chinese surpluses and widening US deficits (and by extension, global imbalances), and the tech and resources war between the two countries.
What could move markets tomorrow?
• IMF/World Bank meetings in Bangkok, ECB President Christine Lagarde, BoE Governor Andrew Bailey among several officials speaking
• TSMC earnings (Q3)
• Japan machinery orders (August)
• US retail sales (September)
• US Cleveland Fed President Beth Hammack speaks
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(Reporting by Jamie McGeever; Editing by Nia Williams)
