The Fed Calls AI A Shock While Seoul Sells The Chips

At the 3:30 p.m. close in Seoul on Tuesday — 2:30 a.m. in New York — the Korea Composite Stock Price Index stood at 5,552.74, down 215.27 points, or 3.73 percent, with SK hynix at 1.22 million won, its lowest close since April, Yonhap reported.

The index has lost about 21 percent over the seven sessions from 6 October through Thursday 15 October, Yonhap reported, and on Tuesday foreign investors were net sellers of 535.4 billion won, institutions sold 1 trillion won, and individuals bought 900 billion won. Yonhap attributed the fall to profit-taking in chip stocks, lingering concerns about the AI value chain, and protests in France.

On Monday, in Cleveland, Beth Hammack, the president of the Cleveland Fed, told Reuters that higher rates could cool the economy “at the margins,” through tempered stock gains and slower activity outside AI.

The same Reuters report put industry AI spending at about $1 trillion next year, roughly 3 percent of US gross domestic product, and quoted Fed Chair Kevin Warsh, speaking last week at an IMF meeting in Thailand, calling AI investment a “shock” to prices and demand while still seeing wealth and productivity gains “over the horizon.”

Brent, meanwhile, reached $111.75 a barrel on Tuesday, the highest since May, and traded at $111.20 at 1120 GMT, up $1.65, Reuters reported. That is a futures price from before the New York open, and it will have changed.

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Start with the ledger the Fed is reading. September consumer prices rose 0.6 percent on the month and 3.7 percent from a year earlier, the Bureau of Labor Statistics reported on 14 October, as summarized by First Trust; core prices, which leave out food and energy, rose 0.3 percent against 0.2 expected, and 2.6 percent on the year.

Energy rose 5.2 percent on the month and 20.4 percent on the year, and gasoline alone rose 9.1 percent in September, accounting for more than half of the headline increase. Real average hourly earnings fell 0.5 percent on the month and 0.7 percent on the year.

Reuters reported that a hold at 3.75 to 4.00 percent is the expected outcome when the Fed meets on 27 and 28 October, with officials saying further increases are likely needed and the argument now over pace and extent.

Then who would feel them. On Reuters’ account, the weight of higher rates would land on small businesses that depend on bank loans, on households carrying debt, and on housing outside the data centers — Nela Richardson, ADP’s chief economist, asked what is left to slow — while the large AI firms Reuters named, Amazon, Apple and Anthropic, were described as largely unaffected by rate increases.

Then the line the Fed does not set. On Monday the Houthis said they had attacked Saudi energy, airport and military targets, including an Aramco site at Yanbu and the Shaybah oilfield; Saudi authorities did not immediately confirm the claims, and Reuters could not verify them. Kpler data showed at least 18 vessels attacked over two weeks, Reuters reported. This letter attributes no attack to any party beyond what that party itself claims.

On one side, a trillion-dollar buildout the Fed chair calls a shock. On the other, a price at the pump that no rate decision reaches.

AAA put regular gasoline at $4.2786 on 20 October, against $4.3413 a week ago, $4.4761 a month ago and $3.0361 a year ago. Diesel stood at $6.3199, against the AAA record of $6.5276 set on 22 September.

The ten-year Treasury yield in the Federal Reserve’s H.15 series stood at 5.21 percent on 13 October, 5.19 on 14 October, 5.10 on 15 October and 5.09 on 16 October, in the release dated 19 October. Monday’s reading is not yet in the series, and live quotes this morning differ, 5.12 percent on one market page and 5.14 on another, so this letter cannot reconcile them.

On Monday the S&P 500 closed at 7,690.73, up 0.41 percent, the Nasdaq Composite at 26,430.89, up 1.11 percent, and the Dow at 51,966.03, down 0.07 percent, as compiled in Investrade’s morning preview, and the Philadelphia semiconductor index rose 1.6 percent, ending a losing streak, Investing.com reported. Nasdaq 100 futures were down 0.50 percent in premarket trading, Reuters reported, and futures do not say how the session will close.

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