The Australian sharemarket is poised to give back Tuesday's gains after Wall Street fell on a hotter-than-expected US inflation report that all but confirmed a Federal Reserve interest rate hike next month, while AI company Anthropic pressed ahead with its blockbuster IPO at a valuation of up to $1.4 trillion.
ASX 200 futures were pointing to a fall of 0.5 per cent at Wednesday's open, after the benchmark index jumped 1.1 per cent on Tuesday. The Australian dollar weakened almost 1 per cent to US68.63 cents.
US stocks closed lower after consumer prices rose 0.4 per cent in October, above economists' expectations of 0.3 per cent. It was the third consecutive month of inflation at or above 0.4 per cent. The S&P 500 fell 0.4 per cent, the Dow Jones Industrial Average lost 0.3 per cent, and the Nasdaq composite dropped 0.7 per cent.
Higher-than-expected inflation reinforced bets that the Federal Reserve will raise its benchmark interest rate at its December meeting. Interest rate markets have fully priced in a quarter-point hike, with a 12 per cent probability of a half-point increase, according to the CME FedWatch tool. Two senior Fed officials signalled they would support further tightening. Fed Governor Christopher Waller, speaking in London before the inflation data, said a stronger policy move may be needed if an underlying measure of inflation rose by 0.3 per cent from September, and said the Fed should consider a half-percentage-point increase rather than the typical quarter-point. Dallas Fed President Lorie Logan suggested two quick quarter-point increases may be necessary.
Pressure from the bond market undercut stocks. The yield on the 10-year US Treasury jumped to 4.99 per cent, a notable move that helps set rates for mortgages and other loans.
The technology sector was the worst performer among the S&P 500's 11 major industry groups, weighed down by a drop of more than 5 per cent in Nvidia, which has fallen about 10 per cent over two sessions. Nvidia's board announced an investigation into its CEO, Jensen Huang, who admitted to a relationship with a woman who, according to The New York Times, US intelligence determined was gathering information for China.
AI-related stocks broadly slipped, with GE Vernova down 6.2 per cent, Micron Technology falling 3.7 per cent and CoreWeave losing 2.2 per cent. Democratic victories in statehouses across the country last week raised concerns about possible restrictions on construction of AI data centres.
Anthropic, the AI company behind the Claude chatbot, is pressing ahead with its initial public offering despite recent volatility. The company said in a regulatory filing that it plans to sell 825 million shares at between $70 and $78 each, raising up to $64.4 billion ($93.8 billion). On a fully diluted basis, including stock options and restricted stock, the company would be valued at about $1.4 trillion ($2 trillion). On a non-diluted basis, the market value would be about $1 trillion. The IPO is expected to begin trading on the Nasdaq on November 19.
Anthropic will also raise $26 billion through a private placement with cornerstone investors including Alphabet's Google, Nvidia and Advanced Micro Devices. The IPO is the year's most closely watched since Elon Musk's SpaceX, which raised $75 billion at a nearly $1.75 trillion valuation in June.
In its most recent results for the six months to June, Anthropic's revenues jumped to $16.2 billion from $1.1 billion a year earlier, but its pre-tax loss widened to $80.7 billion from $12.9 billion. Some investors had earlier predicted a valuation of $2 trillion, according to the Financial Times.
Commodity markets were mixed. Gold fell almost 3 per cent to $US4,026 an ounce on the inflation data. Brent crude fell 0.7 per cent to $US91.91 a barrel. President Donald Trump said late Monday that the war in Iran “militarily is effectively over.” Brent has fallen from more than $US112 a barrel at the start of the month.
In Europe, major indexes were mixed, with the Dax rising 0.3 per cent and the FTSE 100 falling 0.3 per cent. South Korea's Kospi jumped 4.4 per cent, led by gains in Samsung Electronics and SK Hynix.
Analysis
Why This Matters
- US inflation running hot for a third consecutive month raises the likelihood of additional Fed rate hikes, which would increase borrowing costs globally and slow economic growth
- Anthropic's IPO, despite a volatile market and recent AI sector sell-off, will test whether investor appetite for AI stocks remains strong enough to justify the massive spending and high valuations in the industry
- The decline in AI-related stocks and concerns about Nvidia's leadership scandal could ripple through the broader tech sector and affect other companies that rely on AI investment
Background
Anthropic was co-founded in 2021 by Dario and Daniela Amodei along with five others who previously worked at OpenAI, the maker of ChatGPT. The company has raised billions from investors including Google and has been at the centre of the AI boom that sent US stock markets to all-time highs. However, recent weeks have seen increased volatility in AI stocks amid concerns about regulation, the sustainability of investment, and the returns from massive spending on data centres and computing power.
Key Perspectives
Federal Reserve Governor Christopher Waller: before the inflation report was released, said a half-percentage-point rate hike may be needed if an important underlying measure of inflation rose 0.3% from September, warning that moving by only the usual quarter-point could "put our credibility at risk, a risk I am not eager to take."
CNBC's Jim Cramer: said investors should not let bad news drive them out of the market, arguing that an end to the Iran war could send oil prices sharply lower, easing inflation and reducing pressure on the Fed: "At times like this, where you have a bull market one day and a bear market the next and investors seem to have no conviction, you need to think not only what can go wrong, but also about what can go right."
City Index senior market analyst Fiona Cincotta: called the $64bn Anthropic wants to raise "fairly bullish" within "the volatility [and] concerns towards AI that we've seen in particularly last week," adding "It's showing that they are still upbeat about the outlook as far as AI is concerned."
What to Watch
- The ASX 200's performance at Wednesday's open and whether the 0.5% futures decline fully materialises
- The Federal Reserve's December meeting and whether the inflation data leads to a quarter-point or half-point rate hike
- Anthropic's IPO pricing on November 18 and its trading debut on November 19, particularly whether the offering is fully subscribed at the top of the range
Checked
12 claims in this story checked against 4 sources: 12 supported.
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- SupportedASX 200 futures pointed to a 0.5% fall at Wednesday’s open.Just In: “The ASX is set to surrender a large part of yesterday's gains with futures trading pointing to a 0.5 per cent fall on opening.”
- SupportedWall Street retreated on higher-than-expected inflation, strengthening expectations of a December Fed rate hike.Just In: “Wall Street retreated overnight as higher-than-expected inflation virtually cemented the likelihood of the Fed raising raising interest rates again next month.”
- SupportedAnthropic shares are expected to start trading on Nasdaq on November 19.Just In: “Shares are expected to start trading on the Nasdaq on November 19.”
- SupportedAnthropic’s IPO could value the company at up to $1.4 trillion on a fully diluted basis.Just In: “At the top of the price range, Anthropic would be valued at about $US1.4 trillion on a fully diluted basis, which includes securities such as stock options and restricted stock.”
- SupportedUS consumer prices rose 0.4% in October, above economists’ 0.3% expectation.Just In: “the US CPI came it at 0.4% growth in October, compared with expectations of 0.3%.”
- SupportedMarkets had fully priced in a quarter-point December rate hike, with a 12% probability of a half-point increase.Tech: “The market is now fully pricing in a quarter-point rate hike at the central bank's December meeting, with a 12% probability of a half-point increase, according to the CME FedWatch tool.”
- SupportedAnthropic plans to raise up to $64.4 billion in its IPO.Just In: “The AI lab and some of its existing shareholders are aiming to raise up to $US64.4 billion ($93.8 billion) in the IPO by selling 825 million shares priced between $US70 and $US78 each.”
- SupportedFed Governor Christopher Waller said a stronger policy move may be needed if an underlying inflation measure rose 0.3% from September, and said the Fed should consider a half-point increase.Brisbane Times - Latest News: “Fed Governor Christopher Waller said “a stronger policy move may be needed” if the report showed an important underlying measure of inflation rose by 0.3 per cent from September. In that case, he said the Fed should consider hiking the federal funds rate by half a percentage point”
- SupportedNvidia’s board announced an investigation into CEO Jensen Huang, who admitted to a relationship with a woman whom US intelligence determined was gathering information for China, according to The New York Times.Brisbane Times - Latest News: “its board announced an investigation into its CEO, Jensen Huang, who admitted to a relationship with a woman who, according to The New York Times, US intelligence determined was gathering information for China.”
- SupportedPresident Donald Trump said the war in Iran “militarily is effectively over.”Brisbane Times - Latest News: “President Donald Trump said late Monday that the war in Iran, which sent oil prices much higher, “militarily is effectively over.””
- SupportedBrent crude fell 0.7% to $US91.91 a barrel.Brisbane Times - Latest News: “The price for a barrel of Brent crude oil fell 0.7 per cent to $US91.91.”
- SupportedIn its most recent results for the six months to June, Anthropic’s revenue rose to $16.2 billion from $1.1 billion, while its pre-tax loss widened to $80.7 billion from $12.9 billion.BBC News: “In its most recent results for the six months to the end of June, Anthropic's revenues jumped to $16.2bn from $1.1bn in the same period last year. However, its pre-tax loss jumped to $80.7bn from $12.9bn.”
