Morning Wrap: ASX 200 to rally, Dow outperforms as AI stocks flop, US PPI hottest since 2022

In a nutshell:

• Major US benchmarks finish higher and close to best levels, with the Dow (+1%) and Russell 2000 (+1.38%) the largest winners as traders rotated out of chipmakers and into defensive names

• Chipmakers declined for a seventh straight session with the Philadelphia Semiconductor index (SOX) down 14% since 6 October on AI financing and competition worries

• The US PPI print showed producer prices rose at the fastest annual pace since 2022, yet traders trimmed October Fed hike bets ahead of Chair Warsh’s final pre-meeting remarks

• Iran stepped up attacks on Strait of Hormuz shipping, keeping Brent hovering around US$105 a barrel as US crude inventories fell by more than 8m barrels

Let's dive in.

• Major US benchmarks finished higher and close to best levels in a session that saw traders rotate out of chipmakers into consumer names such as Nike (+5%) and Walmart (+1.5%), Nasdaq finished break even but recovered from a 1.4% intraday drop

• Breadth was strong, with the S&P 500 Equal-Weight index up 1.3% and eight of 11 sectors higher, while Utilities, Technology and Energy lagged

• Capital piled into long-duration as investors sought safety from the AI rout. The US 10-year fell 11 bps to 5.07% and the 30-year also down 10 bps to 5.42%, now down 25 bps in the last five sessions

• Brent settled around US$105 a barrel as investors weighed possible US moves to ease shadow fleet sanctions

• Chipmakers declined for a seventh straight session with the Philadelphia Semiconductor index (SOX) 14% down since 6 October on AI financing and competition worries: Nvidia has fallen 9.2% since 6 October and Intel has shed 20% since 2 October

• Twenty of the most valuable global AI and semiconductor stocks have shed more than $1tn this week on rate hike, AI financing and competition worries, with Nvidia, AMD and Intel all lower on Thursday (CNBC)

• Bloomberg’s Charles Riley said the US stock market’s longest stretch of calm since 2020 is over as AI and rate fears collide (BBG)

• Japan’s Nikkei 225 tumbled 4.9% and South Korean stocks also sank, with Morningstar’s Lorraine Tan warning any risk to AI spending growth could slow chip demand in Korea and Taiwan (AP)

• Crossbridge Capital’s Manish Singh said AI demand is real but not every infrastructure builder will earn attractive returns, adding that “debt servicing is still the present” (BBG)

• TSMC Q3: net profit up 68.7% to a record NT$763.1bn, ahead of ests and a sixth straight record, operating margin of 58.7% topped the upper end of guidance, free cash flow more than tripled to NT$476.6bn, management cited agentic and open-source AI as sustaining strong demand (CNBC)

• Nvidia CEO Jensen Huang told Bloomberg CoreWeave’s “strength is improving every day” and its cost of capital is falling, bolstering the shares after a heavy sell-off in its stock and bonds (BBG)

• CoreWeave’s five-year credit default swaps jumped as much as 74.5bp to a record 1,194.5bp, pricing more than 60% odds of default within five years (BBG)

• Anthropic told investors it was cash flow positive in Q3, with revenue up nearly 50% from the prior quarter to $16.8bn (Axios)

• China will keep approving rare earth export licences to Europe regardless of whether the US-China trade truce is extended past January, Commerce Ministry spokesperson He Yadong said (CNBC)

• Republican candidates in battleground races including Michigan’s Mike Rogers and Maine’s Susan Collins are distancing themselves from Trump’s tariffs ahead of the 3 November midterms (NBC)

• Fed funds futures cut October hike odds to below 30% after the PPI release, almost 4 percentage points lower than Wednesday, according to CME FedWatch (YF)

• Mizuho’s Alex Pelle said the data give little reason for the Fed to hesitate on further hikes, with futures pricing a 91% chance of at least one hike by December (CNBC)

• Fed Chair Kevin Warsh holds a fireside chat with IMF Managing Director Kristalina Georgieva in Bangkok at 2.30pm AEDT today, ahead of the Fed’s 27 to 28 October meeting (Fed)

• Iran stepped up attacks on ships transiting the Strait of Hormuz, with traders weighing potential supply disruptions as WTI settled near US$98 (CNBC)

• US PPI rose 1.3% month-on-month in September, the most since March 2022, and 6.3% year-on-year, while core rose 0.7% and 5%, with all four readings above every forecast in a Bloomberg survey (BBG)

• Producer goods prices jumped 2.6%, the most since the series began in 2009, as gasoline surged 20.3%, against a 0.5% headline PPI forecast from economists polled by Reuters (RT)

• US retail sales rose 0.8% month-on-month in September against 0.3% ests as gasoline prices soared 7.1%, while the control group gained just 0.1% versus 0.3% ests (RT)

• Australia’s unemployment rate edged up to 4.7% in September, above expectations and the highest since October 2021, as almost 40,000 jobs were lost (AAP)

• Australian Ethical posts Q1 FUM of $14.43bn, down from $14.50bn at 30 June, as soft Australian equities, $0.08bn of distributions and wholesale redemptions offset inflows. Super net flows of $0.13bn lifted super FUM to $10.53bn, while investment flows were negative $0.10bn (AEF)

• Dusk Group says first 15 weeks of FY27 sales rose 5.7% on pcp and like-for-likes 7.2%, achieved with six fewer stores. Gross margin dollars were up 6.9% and 1H27 margin is expected above pcp on better promotions and sourcing. Early Christmas read in line (DSK)

• PLS Group takes FID on the ~$1.9bn P2000 expansion at Pilgangoora, lifting spodumene capacity to ~2Mtpa from the September quarter CY29. Incremental post-tax NPV of $2.7bn and 29.5% IRR at US$1,620/t SC6, with unit costs of ~$620/t FOB, funded from existing cash and operating cashflow (PLS)

• PLS Group lifts the Pilgangoora Ore Reserve 23% to 249.2Mt at 1.24% Li2O, a 31% increase in contained lithium to ~3.1Mt, including a maiden underground reserve of 46.5Mt at 1.50%. Supports a 20-year open pit life, or 25-plus years with underground (PLS)

• PLS Group will also spend $600-650m on Pilgangoora infrastructure through to FY29, weighted to FY28, covering a sealed Wodgina Road East, a 1,200-bed village and a mine services facility. The road upgrade cuts daily concentrate haulage movements ~35%, with WA government co-funding (PLS)

• Zip Co will seek shareholder approval at its 2026 AGM for a five-for-one share consolidation, cutting shares on issue to a level the board considers more appropriate for its size and market position. The board unanimously recommends the resolution (ZIP)

Kerry here – Wall Street staged a massive rotation out of chips and AI and into healthcare, banks, retailers and anything that benefits from lower long-term yields. US 10- and 30-year yields both fell about 11 bps, a big red candle, though they’re only nearing a one-month low.

• Defensives in demand: The ASX may have been front-running the move, with local Staples (+3.4%), Financials (+2.1%), Utilities (+2.0%) and Telcos (+1.5%) all surging on Thursday. In the US, Healthcare (+1.8%) hit an all-time high, while the Homebuilders ETF rallied 3.1% off a 16-month low and the Airlines ETF gained 2.7% off a five-month low

• Gold rallies, the rest of resources stall: Gold rallied 1.6% to US$4,170, with palladium, silver and platinum also sharply higher. That sparked a strong move in the Gold Miners ETF, up 4.3% overnight. Copper continues to struggle, down 0.8% to US$6.61/lb for a third straight loss, and other resource ETFs, including Copper Miners, Nickel and Rare Earths/Strategic Metals, finished flat

Stocks trading ex-dividend: 

• Fri 16 Oct: Gowing Bros (GOW) – $0.03, WAM Microcap (WMI) – $0.053

• Mon 19 Oct: FFI Holdings (FFI) – $0.125, Solaris Australian Equity Income Plus (SET) – $0.007, WAM Income Maximiser (WMX) – $0.007

• Tue 20 Oct: Clover Corporation (CLV) – $0.013, Kingsgate Consolidated (KCN) – $0.1

• Thu 22 Oct: N1 Holdings (N1H) – $0.004

Other ASX corporate actions today:       

• Dividends paid: Embelton (EMB), Flight Centre (FLT), Imperial Pacific (IPC), Kip McGrath Education Centres (KME), London City Equities (LCE), MLG Oz (MLG), NRW (NWH), SKS Technologies (SKS), St Barbara (SBM)

• IPOs: Europa Metals (EUZ) – 12:00 pm, Overwatch Technologies (OWL) – 11:00 am

• AGMs: Perenti Global (PRN) – 10:30 am

Economic calendar (AEDT):

• 2:30 pm: Fed Chair Warsh Speech