The AI trade has found a new place to hurt. A day after more than a trillion dollars came off the Nasdaq 100, the selling rolled into Asia’s chip heartland: South Korea’s KOSPI dropped about 4 per cent and Taiwan more than 3 per cent this morning. Oil, which had the best day for consumers since the summer on Monday, is quiet. And America votes today in midterm elections that could reshape Congress. For London traders, the question is simple: is this a healthy shake-out in a crowded trade, or the start of something bigger?
The 60-Second Market View
Wall Street ended Monday split down the middle. The S&P 500 slipped 0.51 per cent to 7,541.40 and the Nasdaq Composite lost 1.07 per cent to 25,164, while the Dow, with more old-economy names, rose 0.41 per cent to 51,984. That gap tells you exactly where the pain was: technology, and in particular the companies tied to AI spending and memory chips. The VIX volatility index climbed almost 9 per cent to just over 21.
This morning US stock futures are flat to slightly lower. Brent crude is steady at about $105 a barrel after Monday’s slump, gold has eased back towards $3,920 an ounce, sterling is holding around $1.34 and the dollar is barely moving. The FTSE 100 rose 0.29 per cent yesterday to 10,761.33, and its mix of energy, banks and miners means it is likely to be more insulated from a chip sell-off than markets heavy in technology.
What Happened Overnight?
Asia split along a clear line. Markets heavy in semiconductors fell hard: the KOSPI lost 4.1 per cent and Taiwan’s main index 3.3 per cent. Japan’s Nikkei slipped 0.3 per cent and Shanghai 0.7 per cent. Markets with less chip exposure held up, with Hong Kong up 0.5 per cent, Australia up 0.2 per cent and India up nearly 1 per cent.
Australia’s central bank raised interest rates by a quarter point to 4.85 per cent, its fifth increase this year and the highest level in 18 years. The vote was split six to three, and the bank’s forecasts reportedly show inflation not back inside its target until late 2027, partly because of fuel costs tied to the Middle East. It is a useful reminder that the oil shock is still working its way through the world’s inflation numbers even after Monday’s fall.
In China, the central bank asked banks to hold more of their foreign currency in reserve, from 4 per cent to 6 per cent from 15 November. In plain terms, it is trying to slow the yuan’s rise after a long rally. A strong currency hurts exporters, and Beijing is signalling it wants stability, not a one-way bet.
The Big Story: The Chip Trade Meets Its Own Success
The strange thing about this sell-off is that the companies being sold are, in many cases, reporting excellent numbers. Sandisk said its quarterly revenue had more than quadrupled from a year earlier, yet its shares fell around 6 per cent after a Japanese peer, Kioxia, warned that the surge in flash memory prices may be cooling. Micron also fell about 6 per cent and is down roughly a fifth in a month. Palantir reported revenue up 96 per cent and raised its full-year outlook, and its shares still slipped in after-hours trading.
That is what a crowded trade looks like when it starts to turn. When investors have paid up for perfection, great results are not enough. They need results that beat already sky-high hopes, and they need confidence that the boom in memory prices lasts. The moment someone credible suggests prices might ease, the whole chain reprices: the memory makers in the US, then Samsung and SK Hynix in Seoul, then the chip supply chain in Taipei.
There is a second worry layered on top. Investors are increasingly uneasy about how much the biggest technology companies are committing to data centres, and whether the returns will arrive quickly enough to justify it. When the spenders get nervous, the sellers of chips feel it next.
The reaction so far is concentrated rather than broad. The Dow rose on Monday and the FTSE gained, which suggests money is rotating out of technology into other parts of the market rather than fleeing shares altogether. That is an important distinction. A rotation can be painful for one sector without being a crisis for the market as a whole.
What to watch is whether the selling spreads. If European technology names and the US Nasdaq open lower again and the Dow can no longer hold up, the story shifts from rotation to risk reduction. If the Nasdaq stabilises and the KOSPI finds buyers tomorrow, this will look more like a long-overdue cooling of an overheated trade.
Midterms: Why the Market Cares
Americans vote today for the whole House of Representatives and a third of the Senate. Markets tend to prefer divided government because it makes big policy shifts harder, but this time the stakes include the war with Iran, energy prices and tax policy. The first polls close late tonight UK time, so the real reaction will come in Asia tomorrow morning. Expect lighter trading in the US session as investors wait, and a rise in volatility if the result is close or contested.
FX
Currency markets are calm. Sterling sits around $1.3407 and the euro at about $1.1189, with the dollar index near 101.8. The yen is still weak at nearly 158 per dollar, which keeps the risk of Japanese intervention in the background. The Australian dollar is the one to watch after the rate rise, and the Chinese yuan softened slightly after Beijing’s reserve move.
Equities
The pattern for today is technology versus everything else. In London, the FTSE’s lack of big technology names is an advantage on a day like this, while energy stocks will take their cue from whether Brent holds above $100. In Europe, chip equipment and semiconductor names are the obvious pressure points after Asia’s session.
Bonds
The big move in bonds came with oil. UK 10-year gilt yields have dropped to about 5.20 per cent from nearly 5.30 per cent a day ago as cheaper energy eased inflation fears. US 10-year Treasury yields are around 4.92 per cent and the two-year at about 4.60 per cent. If oil’s fall sticks, it gives central banks, including the Bank of England, a little more breathing room.
Commodities
Brent crude fell about 7.6 per cent on Monday, its biggest one-day fall since July, on hopes that talks between the US and Iran, mediated by Qatar, could reopen the Strait of Hormuz. It is steady this morning near $105. The hopes are real but fragile: US forces carried out limited strikes on Iran’s Qeshm Island on Monday, described by US officials as defensive. Gold is a little softer near $3,920 and silver dropped about 2.6 per cent, while copper fell around 2 per cent, in step with the weaker mood in Asian industry and technology.
Crypto
Bitcoin is little changed at about $76,800. It has been trading more like a technology stock than a safe haven, so it is worth watching alongside the Nasdaq today.
Today’s Economic Calendar
All day: US midterm elections. Why traders should care: the balance of Congress shapes tax, energy and spending policy, and a close result could unsettle markets overnight.
15:00 GMT: US JOLTS job openings. Why traders should care: it is one of the Federal Reserve’s favourite gauges of how tight the jobs market is, and it sets the tone ahead of Friday’s payrolls report.
Late tonight: first US polls close. Why traders should care: the first results hit while Asia is trading, so the reaction will show up in futures and the dollar before London opens tomorrow.
Levels Traders Are Watching
These are reference points, not predictions. On the S&P 500, 7,500 is the round number that matters after Monday’s close at 7,541. For Brent, $100 is the obvious line between a market that believes in a deal and one that does not, with $110 above. Sterling around $1.34 and gold near $3,900 are the nearby markers. On the KOSPI, whether the index can hold above 5,500 after today’s drop will say a lot about how deep the chip selling runs.
Where This Leaves Us
The cleaner read is that this is a rotation out of an expensive, crowded trade rather than a market-wide panic. The evidence is the Dow’s gain on Monday, a firmer FTSE and the way the selling has been concentrated in memory and chip names even as their results stay strong. Cheaper oil and lower gilt yields are a genuine support for the wider market, and that should not be lost in the noise from Seoul.
That view would change if the selling spreads beyond technology, if Brent climbs back above $110 because the Iran talks stall, or if a messy midterm result knocks confidence overnight. The markets worth watching today are the Nasdaq, the KOSPI on Wednesday morning, Brent, US 10-year yields and sterling. The opportunity for patient traders is that strong companies being sold for being too popular can offer better entry points later. The risk is that a crowded trade unwinds faster and further than anyone expects. For beginners, the lesson is that good news and rising prices are not the same thing; what matters is what was already expected.
If you want to understand how you would handle a day like this, and where your trading strengths and gaps really are, take the free Samuel & Co Trading Trader Assessment.
