Asian shares fall as Alphabet earnings miss drags Wall St futures lower

Asian stock markets experienced a decline on Thursday, reversing earlier gains as earnings reports related to artificial intelligence (AI) elicited mixed reactions. This development heightened anticipation for upcoming financial results from Amazon and Intel, which are expected later in the day.

Shares of Alphabet tumbled by 10% in after-hours trading due to significant cash burn, resulting in a nearly $400 billion loss in market capitalization. This downturn contributed to a 1% decrease in Nasdaq futures. In contrast, Microsoft reported better-than-expected cash flows, leading to a 3% increase in its stock price.

Meanwhile, the Federal Reserve maintained its current interest rates, a decision that was largely anticipated. However, two of the committee's members advocated for an increase. Chair Kevin Warsh expressed a more optimistic outlook regarding inflation during a press briefing, which led to a rally in Treasury bonds.

The focus on earnings continued as Samsung Electronics announced on Thursday that its operating profit surged nearly ninefold to reach a record high in the third quarter, fueled by strong demand for AI chips. Despite this impressive growth, Samsung's shares fell over 4%, dragging the KOSPI index down by 2.6% after a nearly 7% rise the previous day.

The MSCI index, which tracks Asia-Pacific shares excluding Japan, declined by 0.7%, while Japan's Nikkei index managed a modest increase of 0.3%. In mainland China, blue-chip stocks fell by 0.9%, whereas Hong Kong's Hang Seng index saw a slight uptick of 0.2%.

Jamie Hannah, the deputy head of investments at VanEck, commented on Alphabet's decline, stating, "The reason why Alphabet is down is because their traditional revenue service of ad generation has been impacted by the very thing which is the AI boom. So it's causing a mix of results for Google." He noted that both Alphabet and Microsoft indicated that revenue generated from AI remains strong, driven by growth in data centers and cloud services. This resilience is reflected in data coming from Asia, including a positive report from SK Hynix in South Korea.

SK Hynix's shares rose by 1.3% after a substantial 11% increase the previous day, buoyed by strong earnings results.

As the central bank narrative continues, attention is now shifting towards the US Personal Consumption Expenditures (PCE) data for September, which the Fed considers its preferred measure of inflation. Analysts predict a 0.3% monthly increase in the core measure, up from a 0.2% rise in the prior month.

Despite the dovish remarks from Warsh, the market is still pricing in an 80% likelihood of a rate hike in December, leading to a steepening of the Treasury yield curve. The 2-year Treasury yield dropped by 6 basis points overnight and remained stable at 4.6933%.

Kerry Craig, a global market strategist at J.P. Morgan Asset Management, noted, "The dissenting votes to hike rates at today's meeting could be interpreted as being not about whether the Fed hikes again, but when."