Trading Day: A November 5 market bonfire

ORLANDO, Florida, Nov 5 : US stocks plunged on Thursday, led by a ferocious selloff in tech and AI-related stocks as investors reassessed implications for the AI data center buildout from the Democrats' sweeping wins in this week's midterm elections. Chip stocks posted their second-biggest fall on record, and interest rates traders pushed back the expected timing of the Federal Reserve's next rate hike to March.

Today's Key Reads

• Tech-stock rout accelerates retreat from the AI trade

• Bank of England raises rates for first time since 2023, warns more likely

• Investors eye risk of debt-ceiling standoff after Democratic sweep

• Musk has little to show for his record spending on Republican campaigns in US midterms

• Surge in 2028 US presidential bets reframes markets after midterms: Mike Dolan

• Today's Key Market Moves STOCKS: Japan -1.8 per cent. Europe and UK -0.4 per cent, Nasdaq -5.5 per cent, S&P 500 -4.4 per cent, Dow -3.4 per cent.SECTORS/SHARES: All 11 sectors on the S&P 500 fall. Tech -7.3 per cent, Philadelphia chip index -12 per cent, second-biggest fall on record. SanDisk -22 per cent, Micron Technology, AMD, Marvell all -17 per cent. Nvidia -9 per cent.FX: US dollar little changed, Aussie dollar biggest G10 decliner, -1 per cent. Chilean peso, Korean won -1 per cent. Bitcoin -6 per cent to $75,000.BONDS: US yields down 12 bps at short end, curve bull steepens sharply.COMMODITIES/METALS: Oil ends 3-4 per cent higher. Gold +1 per cent.

Today's Talking Points:

Meltdown

Remember, remember, the 5th of November. The AI trade imploded on Thursday as investors reassessed their initial, benign reaction to the Democrats' resounding sweep in the US midterm elections, and unleashed a tech sector fire sale on Wall Street. The Nasdaq is firmly in correction territory, down as much as 14 per cent from its all-time high, which was reached only a month ago. Some $2 trillion was wiped off the Nasdaq's market cap on Thursday.

The question now, of course, is whether this marks a real turning point. Investors on Thursday were clearly gripped by the fear that Democrats will use their control of both houses of Congress to slow the data center buildout. "We are now seeing something of a buyers’ strike in tech. The rubber band could get stretched further to the downside," says Truist's Keith Lerner. And he's in the bullish camp. Tech now looks oversold, and therefore should rebound, right? Maybe, but the market has to find a floor first.

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A second week jam-packed with central bank rate decisions and policymakers' pronouncements has left investors none the wiser as to the broader policy trend, if there is one. Indeed, it's more likely that policymakers are desperately hoping for more time before deciding on their next steps — slumping oil prices and stock market turmoil will likely cool hawkish tendencies in developed economies, and give doves pause for thought in emerging markets.

The Bank of England hiked rates for the first time in three years and the hawkish nature of the vote suggests there's more to come. Australia's hiking cycle, on the other hand, may now be over. European Central Bank President Christine Lagarde said more data is needed before December's meeting, while two Fed officials said gradual tightening is the best way to combat inflation. It's even murkier in EM — Brazil's central bank paused its rate-cutting cycle and finds itself in a real bind, while Mexico's central bank delivered a surprise "one-time" rate cut in a split vote.

A job lot

October's US employment data is released on Friday, with economists expecting a net 65,000 rise in non-farm payrolls and an unchanged unemployment rate of 4.2 per cent. Recent labor market data has been surprisingly upbeat, suggesting the feared tsunami of mass layoffs from AI hasn't started. Not yet anyway.

US payrolls days are always among the most volatile for financial markets, as traders try and figure out how the data will influence Fed policy. Right now, on the back of Thursday's stock market rout, rates markets aren't fully pricing in another Fed hike until March, and only 40 basis points of tightening in total. Adding in September's 25 bps hike, that's a full hiking cycle of just 65 bps, or only two full quarter-point moves. That would be the mildest hiking cycle in Fed history.

What could move markets tomorrow?

• Bank of Japan Governor Kazuo Ueda speaks

• Euro zone retail sales (September)

• University of Michigan US consumer confidence, inflation expectations (November, prelim)

• US non-farm payrolls (October)

• Federal Reserve officials scheduled to speak include New York Fed President John Williams, St. Louis Fed President Alberto Musalem, Vice Chair for Supervision Michelle Bowman

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