By Dhara Ranasinghe
LONDON (Reuters) -World stock markets took a beating on Friday as a hawkish tone from Federal Reserve officials doused hopes for a December U.S. rate cut, while a still-messy data calendar and worries about an AI bubble added to the angst.
Blue-chip bourses from Tokyo to Paris and London were deep in the red with fresh concern about Britain’s upcoming budget adding to pain across UK markets.
U.S. stock futures pointed to a bleak open for Wall Street shares after they racked up steep falls on Thursday.
Citing worries about inflation and signs of relative stability in the labour market after two U.S. rate cuts this year, a growing number of Federal Reserve policymakers are now signalling reticence on further easing.
Markets now price a 49% chance of a quarter-point December Fed cut, compared to just over 60% earlier this week.
Concerns about a lack of economic data due to a U.S. government shutdown that came to an end this week, and frothy tech valuations against the backdrop of an AI boom, meanwhile added to the edgy mood across financial markets.
“Until we
get the delayed data, we are in a holding pattern,” said Jeremy Stretch, head of G10 FX Strategy at CIBC Markets in London.
“We are back to 50-50 on a December rate cut and this, alongside concerns about an AI bubble, has destabilised sentiment.”
Already the mood has turned fickle this month and darlings such as Palantir and Oracle shares have notched up falls of around 15% each over the past two weeks. Chipmaker Nvidia is down nearly 8%.
The White House meanwhile has dashed hopes for a clearer view of the U.S. economy any time soon, saying U.S. unemployment data for October may never be available, adding to a sense that the Fed could pause until it gets more clarity.
“There is some alternative data coming through, so markets are getting a view that the labour market is slowing down. But because the Fed doesn’t have enough confidence in the alternate data, they would rather still hold,” said Seema Shah, chief global strategist at Principal Global Investors in London.
“So you have markets that are concerned about the growth outlook,” she added. “If the data is correct in the way it seems to be trending, the economy does require rate cuts.”
MSCI’s broadest gauge of Asian shares outside of Japan fell almost 2%, while Japan’s Nikkei slid around 1.8% and South Korea dropped 3.8%. In Europe, tech stocks fell to a seven-week low.
And as the risk-off sentiment gathered momentum around the globe, bitcoin fell to six-month lows and the safe-haven Swiss franc hit its highest levels since 2015 against the euro.
Chinese shares fell after the release of monthly activity figures that showed industrial output and retail sales slowing in October, missing analyst estimates and snuffing out a short-lived rally in equity markets.
Treasury bonds attracted bids on Friday as investors looked for safe havens. Two-year Treasury yields were a touch lower at 3.58%, having risen 3 basis points overnight, while the 10-year yield rose 1.4 basis points to 4.12%.
The dollar headed for a weekly fall on Friday as investors trimmed positions, with the dollar index a touch lower on the data at 99.19.
The yen got some much-needed respite and last traded at 154.48 per dollar, after hitting its weakest level in nine months on Wednesday.
The dollar was down a third of a percent against the Swiss franc and the euro was little changed at around $1.16.
UK MARKETS WHIPSAWED
Sterling was whipped around by British budget speculation.
British finance minister Rachel Reeves has no plans to raise income tax rates in this month’s budget due to improved fiscal forecasts, a source said, following a surge in borrowing costs earlier in the day on reports she had backtracked on tax hikes.
British government bond yields also rose sharply, with 10-year UK gilt yields last up around 10 bps on the day at 4.53%.
It was set for its biggest one-day rise since early July.
“There have been leaks and rumours about this budget for ages. It’s got to be the most telegraphed budget ever,” said Nutshell Asset Management CIO Mark Ellis.
Elsewhere, oil prices rallied on supply fears after the Black Sea port of Novorossiysk halted oil exports following a Ukrainian drone attack that hit an oil depot in the major Russian energy hub.
Brent crude futures rallied 1.5% to $64 a barrel, while U.S. West Texas Intermediate crude advanced 1.6% to $60 a barrel.
Spot gold prices were last down 1.3%. However, the yellow metal remains not too far from its record top of $4,381.
(Reporting by Dhara Ranasinghe and Iain Withers in London; additional reporting by Stella Qiu and Gregor Stuart Hunter; editing by Mark Heinrich and Louise Heavens)
