Crypto News: 5 things to start your day: Europe

Good morning. Asian stocks tumble after AI concerns rattle US markets. Luxury retailers are under pressure. And calls for a Fed rate cut are rising. Here's what people are talking about.

Stocks across Asia have tumbled as traders follow US investors in reassessing the promise of artificial intelligence. Those concerns sparked a $1 trillion rout in the Nasdaq 100 Index Wednesday as questions swirled over just how long it will take for the substantial investments in the technology to pay off. The Nasdaq indexes fell more than 3% for the worst days since October 2022. The list of laggards was a who's-who of AI technology darlings, led by semiconductor companies such as Nvidia, Broadcom and Arm Holdings. The selloff was triggered by a middle-of-the-road earnings report from Alphabet late Tuesday that featured a bloated capital expense. The company's stock sank more than 5% for its worst performance since January. And Tesla plunged 12% after CEO Elon Musk offered scant details about his company's self-driving vehicle initiative.

French tycoon Bernard Arnault's net worth has plunged this year by more than anyone else's on the Bloomberg Billionaires Index, as demand for luxury goods continues to sour. The founder of fashion-to-Champagne conglomerate LVMH has seen his fortune drop by $20 billion during the period to $187 billion, according to the ranking of the world's 500 wealthiest people. The slide came as LVMH's shares took a beating on disappointing results this week. And Kering — home to the Gucci brand — has warned that its profit is set to tumble in the second half of the year as luxury demand cools. Kering's American depositary receipts dropped as much as 9.1% in New York trading.

The US yield curve steepened sharply amid growing calls for the Federal Reserve to start cutting interest rates as soon as next week. Investors see the Fed potentially reducing rates faster and deeper than previously anticipated. Swaps traders still price in more than two quarter-point cuts this year, with the first move likely in September. But with the central bank scheduled to announce its next decision in a week, pressure is rising for lower borrowing costs. In a Bloomberg Opinion column, former New York Fed President William Dudley said policymakers should reduce rates at the July gathering.

Blackstone Mortgage Trust's move to slash its dividend 24% is starting to hand a win to short seller Carson Block, who zeroed in on the lender as one likely to get swept up in the commercial-property fallout. While Block predicted last year that the mortgage trust would have to cut its dividend by at least half — more than the reduction announced Wednesday — his bet looks prescient. Shares of Blackstone Mortgage Trust, also known as BXMT, fell Wednesday in New York. Block, who announced he was short BXMT in December, said his base case was that the Blackstone trust would first cut its dividend for the third or fourth quarter. The stock is down about 22% since the day before Block made his statement on his short bet last year.

The Bank of England revealed details of a new facility designed to avoid UK bond market blow-ups like the one two years ago by lending directly to asset managers. During times of "severe" market dysfunction, the BOE will provide non-bank financial institutions such as pension funds cash in return for gilts pledged as collateral, the central bank said. Lending directly to firms other than banks is a radical proposal as it greatly expands the central bank's purview, which traditionally has relied on commercial banks to manage the liquidity needs of financial markets. It reflects the increasing need to stem risks that the sector poses. These firms have not faced the same regulations as banks did following the global financial crisis, and over the years have taken an outsized role in the system.

Today's economic calendar includes Sweden's PPI, French manufacturing confidence and a Ukraine rate decision. Central bank speakers include the ECB's Nagel and Lagarde. Julius Baer, Nestle, Air France-KLM, Stellantis and TotalEnergies are among companies reporting earnings.

This is what's caught our eye over the past 24 hours.

BOE rate rises pushed 320,000 more people into poverty, IFS says
Deutsche Bank real estate woes spoil party for European lenders
Netanyahu vows to press on in Gaza in defiant speech to Congress
CrowdStrike sends $10 gift cards to IT workers as mea culpa
Thames Water scrambles to avoid fines as it's cut to junk
UK's Crown Estates partners with GB Energy to expand wind power
Paris hotels slash prices 41% from peak to lure visitors

The loud risk aversion noise engulfing global markets is restoring an old hedging relationship with investors selling euro-yen against sliding European equities.

Seasoned traders will be looking back with trepidation to the fourth quarter of 2008 when there was a close correlation between the direction of the sliding euro and the Euro Stoxx 50 gauge.

Adding to current momentum is the unwinding of currency carry trades, which are especially skewed toward shorting the Japanese currency as a funding tool. It's a strategy which has been working well since early 2023, but could be facing an endgame as the Bank of Japan prepares another interest rate hike. Leading into next week's policy meeting investors are forming a consensus the central bank will finally deliver on higher rates and lower bond purchases.

Meanwhile, European equities are reeling from LVMH's selloff after the company missed estimates for its sales growth in the second quarter.

Macro investors are also wondering if the European Central Bank may need to revise its outlook on the pace of interest rates cuts after saying that it lacks clarity beyond September. Should the sour mood in stocks affect European consumer confidence, faster rate cuts could be back on the table, further undermining the euro.

Mark Cranfield is a macro strategist for Bloomberg's Markets Live team, based in Singapore.