The Australian sharemarket fell sharply at Tuesday's open, with mining and banking stocks leading a broad retreat even as technology shares managed to push higher, riding the coattails of an artificial intelligence rebound on Wall Street overnight.

The S&P/ASX 200 dropped 89.9 points, or 1 per cent, to 8755.80 as of 10.20am AEDT, with ten of its eleven sectors trading in the red. The only bright spot was technology, which tracked gains in AI-linked stocks from the previous session in the United States. The Australian dollar firmed to US69.81 cents.

BHP and NAB weigh heavily on the ASX

BHP, the largest stock on the Australian exchange by market capitalisation, slid 1.9 per cent after the mining giant revealed its copper output fell by almost 20 per cent in the September quarter. The result rattled investors in a stock that carries outsized influence over the direction of the broader index.

National Australia Bank dropped 0.8 per cent after the lender confirmed plans to cut up to 2500 positions, representing roughly 6 per cent of its total workforce, over the coming financial year. The announcement added to a difficult morning for the financial sector, which had no positive catalysts to offset the jobs news.

Miners broadly led the declines, compounding the drag from the banks and leaving the index well into negative territory despite the overnight tailwind from US technology stocks.

AI stocks rebound on Wall Street, but gains are uneven

The overnight session in the United States was a study in contrasts. The S&P 500 gained 0.4 per cent, recovering some ground after its worst weekly performance since June, while the Nasdaq composite climbed 1.1 per cent, buoyed by its heavy weighting towards technology companies. The Dow Jones Industrial Average, however, swung between gains and losses before finishing with a modest decline of 36 points, or 0.1 per cent.

Chipmaker Nvidia added 1.4 per cent and was among the strongest contributors to the S&P 500's recovery. As the largest stock on Wall Street by total market value, even a small move in Nvidia's price carries more index weight than virtually any other company.

SpaceX, which controls the xAI business, rose 1.3 per cent to $US147.96. Its founder pledged on Monday to gift one share of SpaceX to every child in America next year. The announcement followed a commitment by AI company Anthropic over the weekend to allocate 5 per cent of the shares from its highly anticipated public listing to a new public benefit fund.

The recovery in AI stocks was far from smooth, however. Cloud computing provider CoreWeave, which borrows to purchase AI chips that it rents to customers, initially jumped more than 7 per cent before reversing to a loss of 3.5 per cent, ultimately finishing the day down just 0.4 per cent. That volatile session followed a 25.2 per cent loss the previous week, illustrating just how wildly AI stocks have been swinging as sentiment shifts on borrowing costs and valuations.

Bond yields and European unrest add to market pressure

European markets fell more sharply than Wall Street, with major indexes sliding more than 1 per cent. Violent protests across France raised the prospect that the government may be forced to increase spending to pacify voters, a development that could add further strain to already stretched bond markets. Government bond yields rose worldwide as a result, increasing the cost of borrowing for businesses and consumers.

Those rising yields have been a central concern for AI-linked stocks in particular, given that much of the sector's rapid expansion in chips and data centre infrastructure has been funded by debt. When borrowing becomes more expensive, the calculus around that spending changes quickly.

What to watch next

Investors are now focused on a wave of corporate earnings reports due later in the week that could either validate or challenge the AI spending boom. Meta Platforms, which is promoting its Muse AI agent, is set to report quarterly results on Wednesday, alongside semiconductor equipment supplier Lam Research. Analysts are forecasting overall profit growth of 29 per cent for S&P 500 companies compared with the same period a year earlier, a high bar that has helped propel US markets to record levels despite lingering concerns around inflation and geopolitical tensions. Those expectations will be tested in the days ahead.