Equities: Hot CPI and AI fears drag stocks lower - Deutsche Bank

Deutsche Bank analysts report that US equities sold off as a strong US CPI print and mounting fears around the AI trade weighed on risk assets. The S&P 500 posted its worst performance since July, with futures pointing to further declines. Credit spreads widened and AI-exposed names, including semiconductors, saw pronounced weakness, reinforcing a cautious near-term equity outlook.

Worst S&P performance since July

"Meanwhile for equities, the developments pushed the S&P 500 (-1.11%) to its worst performance since July, and futures on the index are down another -0.50% this morning. Moreover, there’s been a huge selloff in Asia overnight, with the KOSPI (-7.04%) and the Nikkei (-5.08%) both slumping, and the KOSPI even saw a circuit breaker triggered earlier given the scale of the declines."

"In terms of the catalysts, several names most exposed to AI have already been under mounting pressure in recent days. For instance, we mentioned in yesterday’s edition how CoreWeave’s 5yr CDS contract went over 1000bps intraday on Tuesday, highlighting how nervous some credit investors were about the company’s leverage profile. But yesterday, their CDS was then up another +136bps, closing at 1118bps, and the company’s share price fell -15.46% on the day."

"Moreover, this pressure started to be noted more widely, particularly among those firms that have been heavily scrutinised by credit investors given their large capex needs. So this led to big losses elsewhere, with Oracle (-8.83%) posting its largest decline since June, whilst the Philly semiconductor index (-4.30%) posted a 6th consecutive decline for the first time in over a year. In fact, that now leaves the index down -11.6% over those 6 sessions."

"Earlier in Europe, the continent’s assets put in a relatively better performance yesterday, albeit with a strong divergence across the board. For equities, there was strength in aggregate, with the STOXX 600 (+0.43%) up to a two-week high. However, there were gains for some like the FTSE 100 (+0.70%) and the CAC 40 (+0.58%), whereas Italy’s FTSE MIB was down -0.61%"

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)