* Divided Fed stands pat on rates, long-end bonds slump
* Stocks choppy as worries on AI trade rattle markets
* Oil near $90/barrel amid Middle East hostilities
(Updates to Asia late morning)
By Ankur Banerjee
SINGAPORE, July 30 (Reuters) - Asian stocks struggled for
direction in choppy trading on Thursday after a week of market
turbulence sparked by AI jitters, as a divided Federal Reserve
stood pat on rates and left bond markets uncertain about the
next move.
Brent futures slipped below $90 per barrel, after
jumping over 7% a day earlier as fighting in the Middle East
escalated, although data showed tankers continued to make their
way out of the region despite the continued strikes.
The dollar was on the defensive after the U.S. central bank
held rates steady although the split decision left investors
confused on whether the Fed will see through rate hikes to
combat inflation. Yields on longer-dated U.S. Treasuries rose to
19-year highs.
Asian chipmakers have been at the centre of attention this
week after a bruising selloff in South Koreanequities wiped more
than $2 trillion off market value and heightened investor
anxiety over the payoff from huge AI investments.
"Uncertainty about U.S. monetary policy, the sharp
steepening of the Treasury yield curve, growing tensions in the
Middle East and continued worries about the semiconductor
industry and AI sector mean that markets are likely to stay
volatile in the near term," said Vasu Menon, managing director
of investment strategy at OCBC.
The KOSPI was down 0.6% in choppy trading, on track
for a 15% weekly slump, a selloff that prompted Finance Minister
Koo Yun-cheol to apologise for the rollout of single-stock
leveraged ETFs and led authorities to unveil
market-stabilisation measures.
MSCI's broadest index of Asia-Pacific shares outside Japan
was flat after swinging wildly between gains and
losses. Japan's Nikkei was 1.2% higher, but set for a
3.7% drop in the week.
"Given that the fundamental thesis remains intact, there
does appear to be an irrational, panic-like element to the
current selling," said Gina Kim, portfolio manager for emerging
market equities at Nordea Asset Management in Singapore.
"I cannot comment on when the panic will stop as such but
some indicators to look out for would be margin balances in both
Taiwan and Korea for retail investors. Both are declining but we
would ideally need to see some levelling off," said Kim.
Chipmaker Samsung Electronics said its operating
profit jumped 19-fold to a record in the second quarter, helping
lift beaten-down investor sentiment.
Earnings reports from mega caps Meta and Microsoft ( MSFT )
underscored sharply contrasting fortunes for companies
racing to build AI infrastructure.
Microsoft ( MSFT ) reassured investors it would continue generating
cash through fiscal 2027 despite heavy spending, sending its
shares higher, while Meta's stock fell after a 91% collapse in
second-quarter free cash flow.
Nasdaq futures rose 0.7% in Asian hours while
European futures were 0.3% higher.
FED LOOKING TO MARKETS FOR CUES
In a post-meeting media conference, Fed Chair Kevin Warsh
vowed to contain inflation but gave no indication of the steps
the central bank might take.
Warsh noted that bond yields had risen notably since the
Fed's last policy meeting, reflecting market expectations of
higher interest rates. He welcomed the move, while stressing
that it did not oblige the Fed to validate those expectations
with policy action.
"To me this is a way of saying the market has done the Fed's
job so far," said Blerina Uruci, chief U.S. economist at T.
Rowe Price.
"Ultimately, Warsh's hawkish tone will not be enough to
ensure price stability. The market will learn the hard way that
no forward guidance means Warsh and the FOMC will not deliver on
a policy outcome just because the market has priced it."
That confusion left yields on 30-year U.S. bonds
at 5.2039%, having hit their highest since June 2007 at 5.2273%
late in New York trading.
Fed funds futures now implied around a 60% chance
the Fed would lift rates at its next meeting in September and
had 33 basis points of tightening priced in by year-end.
"The Fed is likely to face ongoing questions around its
credibility," said Kerry Craig, global market strategist at J.P.
Morgan Asset Management.
"The gap between the Fed's rhetoric and its actions may pose
a challenge for market pricing. A new chair faces a divided
committee and a bond market that's starting to question the
central bank's resolve."