World stocks stalled on Thursday as cloud computing giant Oracle sounded a warning for AI profitability, while bonds were firm and the dollar nursed losses after the U.S. Federal Reserve cut interest rates for a third meeting running.
Despite the Fed relief, many heavyweight Asian and European markets were left struggling after Oracle reignited jitters over stratospheric tech valuations by missing analysts' sales and profit estimates and flagging a $15 billion AI overspend.
The U.S. firm's shares sank over 11% in after-hours U.S. trading, pushing both Nasdaq futures and Japan's Nikkei down around 1% as SoftBank - a partner with Oracle on the U.S. Stargate data centre project - slumped over 7.5% too.
Europe saw a muted start as well, as a 2.5% drop for Germany's SAP left the region's tech indices facing a third straight day in the red, although the prospect of lower global interest rates meant there were gains elsewhere.
Oracle at centre of AI spending debate
Hargreaves Lansdown analyst Matt Britzman said Oracle has been at the epicentre of the AI spending debate, given it lacks the mammoth cash flows of the likes of Google, Amazon and Microsoft.
"Markets quickly looked past the massive earnings beat, driven by a one-off asset sale, and focused on the rising capex and weak cash flows," Britzman said, adding it fanned broader concern that AI outlays aren't turning profits for firms as quickly as hoped.
Traders were otherwise focusing on the global interest rate outlook after the Fed lowered its benchmark funds rate, as expected, by 25 basis points to 3.5% to 3.75% in a 9-3 split decision.
Fed Chair Jerome Powell sounded balanced at a press conference, saying he didn't "think a rate hike is anyone's base case", while new wording on "the extent and timing" of further rate adjustments signalled a possible pause ahead.
That left interest rate futures with at least two rate cuts priced in for next year and undercut the dollar, which helped the euro break through chart resistance and briefly push above $1.17.
Indosuez Wealth Management CIO Alexandre Drabowicz said the bar for another U.S. rate cut in the coming months now looked quite high and would likely be determined by the health of the jobs market.
"We see another cut in the first half of the year," he said. Though forecasting the second half is "too difficult", with a new Donald Trump-appointed Fed chair due in May, "for sure, it will be leaning towards more cuts."
"This is still an environment where we keep a cautious view on the U.S. dollar," Drabowicz added.
Bonds caught a further boost as the Fed also announced it would start buying short-term Treasuries as soon as Friday to support liquidity.
Benchmark 10-year yields fell about 4 basis points to 4.12% with two-year U.S. yields down at 3.52%.
Germany’s 10-year yields, Europe's benchmark, were down one basis point at 2.85%, having hit 2.894% on Wednesday, their highest level since mid-March.
Money markets had been volatile in recent weeks, leading to a premium on short-term rates as liquidity was stretched.
"The Fed doesn't have a lot of appetite for that sort of thing to continue because it inhibits the transmission of monetary policy," said ANZ Senior Rates Strategist Jack Chambers.
Dollar slides
In foreign exchange markets, trade and risk-sensitive currencies such as the Australian and New Zealand dollars slipped in the Asia session, but the yen was firm with eyes on next week's Bank of Japan meeting where a hike is expected.
The yen has reversed a recent fall and rose to 155.62 per dollar in Asia trade on Thursday. The euro struck a two-month high of $1.1707, enjoying an extra boost from comments by European Central Bank President Christine Lagarde that another upgrade in European growth projections was possible.
"The next big cue will be the November (U.S.) non-farm payrolls release on 16 December and whether a soft number can keep market pricing of two further rate cuts in 2026 intact," analysts at ING said in a note.
"Seasonally, the dollar tends to weaken into year-end and with Fed event risk now out of the way, EUR/USD could have that run-up to 1.1800 after all."
Oil prices also eased after gaining on Wednesday in the wake of the United States' seizure of a sanctioned oil tanker off Venezuela's coast, which escalated tensions with Caracas, raising concern over possible supply disruptions.
Brent and U.S. crude futures were down roughly 1.2%, fetching $62.15 and $58.44 a barrel, while gold and bitcoin both ticked lower as well to $4,216 an ounce and $90,358 respectively.
(Additional reporting by Tom Westbrook in Hong Kong; Editing by Joe Bavier)
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