Equity indexes worldwide took a beating yesterday as a hawkish tone from Federal Reserve officials doused hopes for a December US interest rate cut, while a still-messy data calendar and worries about an artificial intelligence bubble added to the angst.
Gold prices tumbled and US Treasuries trading was choppy as investors sought safety after blue-chip bourses from Tokyo to Paris fell. In London, fresh concern about Britain’s upcoming budget added to pain across UK markets. Citing inflation worries and signs of relative stability in the labor market after two US rate cuts this year, a growing number of Fed policymakers have signalled reticence on further easing.
After 43 days of assessing Fed policy without official data due to a record-long US government shutdown, traders were pricing in a 53 per cent chance of a quarter-point December Fed cut. This was up slightly from Thursday but well below the 66.9pc probability a week ago, according to CME Group’s FedWatch tool. Investors have also been jittery about frothy valuations in heavyweight technology stocks against the backdrop of a boom in capital spending for AI.
“The two key supports for the market, the AI trade and the Fed cutting rates, have flipped on the margin where there’s more concerns around AI capex and the market is repricing lower the potential for a Fed rate cut,” said Keith Lerner, chief investment officer at Truist Advisory Services, noting that the selloff follows massive gains in stocks in late October.
“Where we had a couple of weeks ago, an everything rally, now you have an everything decline,” including small-cap stocks, he said. “The market is effectively saying that it’s more concerned about the growth side of the mandate and that the Fed could be making a mistake by waiting.”
Quarterly earnings from AI chip leader Nvidia and a host of retailers in the week ahead could shed light on the state of the consumer and the AI market, Lerner added.
As of 11.07am on Wall Street, the Dow Jones Industrial Average fell 373.13 points, or 0.79pc, to 47,084.09, the S&P 500 dropped 10.26 points, or 0.15pc, to 6,727.38 and the Nasdaq Composite rose 9.32 points, or 0.04pc, to 22,879.67.
MSCI’s gauge of stocks across the globe fell 5.34 points, or 0.53pc, to 994.82.
The pan-European STOXX 600 index fell 1.27pc, while Europe’s broad FTSEurofirst 300 index fell 29.47 points, or 1.27pc.
MSCI’s broadest gauge of Asian shares outside of Japan fell 1.5pc, while Japan’s Nikkei slid 1.8pc and South Korea dropped 3.8pc. Chinese shares fell 1.6pc on news that October industrial output and retail sales slowed, missing analysts’ estimates and snuffing out a short-lived stock rally.
US Treasury yields turned higher after an initial drop as the Wall Street selloff ushered investors into less-risky assets while they marked time for the reopened government to resume publishing economic indicators.
The benchmark US 10-year note yield rose 0.8 basis points to 4.119pc from 4.111pc late on Thursday. The 30-year bond yield rose 2.6 basis points to 4.7279pc.
The 2-year note yield, which typically moves in step with interest rate expectations for the Fed, rose 0.2 basis points to 3.591pc from 3.589pc late on Thursday. In currencies, the Swiss franc pared gains after the global equities selloff sent investors to safe havens. The dollar was down 0.04pc at 0.7925 Swiss franc.
Sterling weakened 0.37pc to $1.314. 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.
The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, rose 0.08pc to 99.31, with the euro down 0.15pc at $1.1613.
The dollar weakened 0.12pc to 154.37 Japanese yen.
Oil prices climbed on supply fears after the Black Sea port of Novorossiisk halted oil exports following a Ukrainian drone attack on an oil depot in the major Russian energy hub.
US crude rose 2.5pc to $60.16 a barrel and Brent rose to $64.40 per barrel, up 2.21pc on the day.
Gold prices dropped 2pc yesterday on the broader market sell-off sparked by Fed officials’ hawkish remarks. Spot gold fell 2.06pc to $4,084.52 an ounce. US gold futures fell 2.78pc to $4,070.30 an ounce.
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