ASX Slides as US Midterm Results Shake the AI Trade: RBA's Inflation Battle Adds to Market Uncertainty

Australian equities: what moved the ASX 200?

Australian equities finished Wednesday, 4 November, lower as concerns surrounding US political developments, technology valuations and the Reserve Bank's latest interest rate increase weighed on sentiment.

The ASX 200 closed at 8,840.30, down 46.50 points or 0.52%, reversing Tuesday's 0.34% gain. The index opened at 8,886.80 and traded as low as 8,820.30, with the weakness extending across much of the market.

Financials and healthcare were among the weakest sectors, both falling approximately 0.9% during the session. Utilities performed best, gaining 0.8%, followed by technology at 0.7% and energy at 0.6%. Eight of the ASX's 11 sectors were lower.

One notable corporate development was the High Court ruling requiring Uber to pay approximately $81 million in New South Wales payroll tax relating to driver fares between 2015 and 2020. The decision reinforces the potential regulatory and employment-related costs facing platform businesses.

The more important development, however, was the resilience of household spending despite rising borrowing costs. This complicates the RBA's inflation outlook and suggests that monetary tightening has not yet meaningfully subdued domestic demand.

The Australian dollar, bonds and the RBA

The Reserve Bank raised the official cash rate by 25 basis points to 4.85%, effective 4 November. This represents the fifth increase of 2026 and takes borrowing costs to their highest level since 2008.

The decision was not unanimous, with six board members supporting the increase and three preferring to leave rates unchanged. The RBA also revised its inflation outlook higher, warning that inflation could remain elevated through much of 2027 and may not return to the top of its 2% to 3% target range until late next year.

Wednesday's household spending figures added another complication. Spending increased 0.6% in September following a revised 0.1% decline in August. More importantly, spending volumes increased 0.7% during the September quarter, indicating that underlying consumption remains relatively resilient.

The Australian dollar traded around US$0.696 around 3.00pm AEDT, while global bond markets experienced significant volatility as US political developments influenced expectations for government borrowing and interest rates.

Our interpretation is that the RBA faces an increasingly difficult balancing act. Persistent inflation argues for tighter policy, but weaker housing conditions and rising unemployment create meaningful risks to economic growth.

Global markets: China, Asia and Europe

Asian markets experienced substantial selling pressure, particularly across technology and semiconductor companies.

Japan's Nikkei 225 fell approximately 3.6% around midday, while South Korea's Kospi also suffered significant losses. Hong Kong and mainland Chinese equities weakened as concerns about global technology spending and Chinese economic momentum continued to influence sentiment.

The pressure on Japanese technology shares was particularly pronounced. SoftBank, Advantest and Tokyo Electron were among the companies affected by concerns that changing US political priorities could slow data-centre investment and artificial intelligence infrastructure development.

For Australia, China's economic outlook remains important, particularly for iron ore and copper producers. However, Wednesday's developments suggest global technology investment expectations are becoming another important influence on industrial commodity demand.

Wall Street: US stocks and the Federal Reserve

Wall Street finished Tuesday's session mixed. The S&P 500 gained 0.36% to 7,568.92, while the Nasdaq Composite advanced 0.83% to 25,372.01. The Dow Jones Industrial Average fell 0.38% to 51,786.72.

Technology shares provided support, with NVIDIA and other artificial intelligence-related companies recovering. Apple declined 1.9% after highlighting rising memory-chip costs and their potential impact on profitability.

However, Wednesday's US midterm election results changed the market narrative considerably. Democratic gains across key races raised expectations of greater regulatory scrutiny of artificial intelligence and data-centre development.

US equity futures subsequently weakened, particularly Nasdaq futures, while the US 10-year Treasury yield declined approximately six basis points to 4.91%. The US dollar also weakened as markets reassessed the political and fiscal outlook.

This is an important distinction: Tuesday's positive Nasdaq performance represents a completed trading session, whereas Wednesday's deterioration reflects subsequent developments before the next US market open.

Commodities: gold, oil and industrial metals

Gold traded around US$3,940 per ounce during Wednesday's Australian session, supported by political uncertainty and changing expectations for global interest rates.

Brent crude futures traded around US$103 per barrel, following recent volatility as markets assessed developments surrounding Middle Eastern supply risks and diplomatic efforts.

Iron ore traded around US$91.65 per tonne, providing some support for Australia's major mining companies. Copper, meanwhile, settled at approximately US$14,036 per tonne on Tuesday, having fallen 2.2% to its lowest level since mid-September.

The weakness in copper deserves attention because it highlights concerns about industrial demand and the sustainability of technology-related infrastructure spending.

What to watch next

The immediate focus is the reaction on Wall Street when US markets reopen, particularly whether technology shares recover or extend their losses following the midterm election results.

Domestically, the September household spending figures reinforce the importance of monitoring inflation, employment and consumer demand following the RBA's latest decision. The next Australian monthly inflation release is scheduled for 25 November.

We should also monitor Chinese economic indicators, industrial commodity prices and US Treasury yields for signs that global growth expectations are changing.

Our view is that markets are entering a more challenging period, with domestic monetary tightening coinciding with international political uncertainty and growing questions about technology valuations. The key issue is whether corporate earnings can continue supporting market valuations while financing costs remain elevated.

For the next Australian session, we would pay particular attention to Wall Street's reaction, movements in the Australian dollar and whether weakness in technology and mining shares broadens. These developments will help determine whether Wednesday's decline was simply a temporary adjustment or an early indication of a more cautious market environment.