Financial markets across Asia opened the week on a negative note, gripped by mounting anxieties over the sustainability of the technology sector's rally and growing doubts about imminent interest rate cuts from the US Federal Reserve.
Fed Policy and Tech Valuations Spook Investors
The optimistic sentiment that had propelled stocks higher since April began to unravel as investors reassessed two key pillars of the recent rally. The first is the expectation that the Federal Reserve would soon reduce borrowing costs, a hope fueled by a softening US jobs market. The second is the massive influx of capital into artificial intelligence-related companies, which had sent tech stocks, led by chipmaker Nvidia, soaring.
However, caution returned after Fed Chair Jerome Powell indicated that a third consecutive rate cut in December was not a certainty. Other officials from the central bank have also hinted at a pause, expressing concern that inflation remains stubbornly above their two percent target. This has overshadowed worries about the labour market.
Traders are now eagerly awaiting a backlog of economic reports, including crucial data on jobs and inflation, which were delayed by the recent record-breaking US government shutdown. The winding back of bets on rate cuts coincides with growing unease about sky-high valuations in the tech sector, with many analysts warning of a potential bubble.
Market Performance and Regional Tensions
Following a tepid close on Wall Street, the negative mood spread to Asia. Key indices in Hong Kong, Shanghai, Sydney, and Singapore all recorded losses. While Seoul, Manila, and Taipei managed to advance, Tokyo's market sank.
Japan's economy was reported to have shrunk by 0.4 percent in the third quarter to September, adding to the domestic pressure. Furthermore, a diplomatic dispute with China over comments made by Japanese Prime Minister Sanae Takaichi regarding Taiwan hit specific sectors hard.
China subsequently advised its citizens to avoid travel to Japan, causing tourism and retail stocks to plummet. Cosmetics giant Shiseido plunged nine percent, department store group Takashimaya fell more than five percent, and Fast Retailing, the owner of Uniqlo, dropped over four percent.
Cryptocurrency and Commodities Feel the Pressure
The risk-averse environment also took a heavy toll on the cryptocurrency market. Bitcoin briefly tumbled to $92,935.51, erasing all the gains it had accumulated throughout 2025 and falling below its year-end 2024 price of $93,714. This represents a dramatic fall from its record peak of $126,251 reached on October 6.
The digital asset had enjoyed a strong rally for much of the year, partly driven by President Donald Trump's return to the White House and his pro-crypto stance, which led to the passing of three landmark cryptocurrency bills in July. However, the current climate of uncertainty has prompted a sharp sell-off.
In commodities, oil prices also retreated. West Texas Intermediate crude was down 1.0 percent at $59.51 per barrel, while Brent North Sea Crude fell 0.9 percent to $63.82 per barrel.
As the week progresses, all eyes will be on the earnings report from Nvidia, the chip titan that recently became the world's first $5 trillion company. Its performance is seen as a critical test for the high-flying AI sector and the broader market sentiment.
