It’s ugly out there. Futs are sharply lower on doubts about whether the Fed will cut interest rates again in December, as fear deepens about stretched AI valuations and the debt used to fund them. S&P 500 futures are down 1% at 8:00 a.m.ET following continued unwind of momentum/AI thematic + hawkish Fed digestion (Kashkari undecided on Dec cut yesterday makes 5 officials now questioning/mkt currently pricing ~50% of Dec cut vs ~66% last Friday; more hawks today Schmid today @ 10:05am, Logan 2:30pm, Bostic 3:20pm); Nasdaq futures plunge 1.6%, pointed to a fourth consecutive day of losses in a week in which aggressively-built long positions in momentum stocks were unwound and value baskets comfortably outperformed. Pre-market, Mag 7 are all underperforming: TSLA -2.6%, NVDA -1.1%, META -0.5%. The VIX rose above 22.55, and is at session highs. Bond yields are sharply lower following a huge block of 135,000 10Y futs sold; USD was higher but then repriced sharply lower to LOD just around 7am ET. Commodities are mostly higher: oil +2.6%, sugar +1.6%. Bitcoin sank to a six-month low below $95K. This morning, we have seen a continuation of momentum unwind in the equities markets given valuation and positioning of the AI story; NVDA fell again into it earnings next week.
In premarket trading, Magnificent Seven all retreated in premarket trading as doubts over an interest-rate cut in December deepened concerns about stretched valuations (Tesla -4.8%, Nvidia -3.1%, Alphabet -2.7%, Amazon -1.6%, Meta -1.5%, Microsoft -0.6%, Apple -0.1%)
In corporate news, Citigroup’s CEO Jane Fraser says her bank is growing “rapidly” in China with reviving interest from investors and companies in the world’s second largest economy. NBA star Stephen Curry is leaving Under Armour, the sportswear firm that partnered with him for more than a decade.
One doesn’t need to look at futures to see the signs of growing nervousness, with volatility in bond markets also on the rise. Minneapolis Fed president Neel Kashkari said Thursday he didn’t support the US central bank’s last interest-rate cut, though he’s still undecided on the best course of action for its December policy meeting. Markets are now pricing in less than a 50% chance of a cut next month, down from about 63% earlier this week and over 95% a month ago. Just after 7am ET, we saw a purchase of 135K 10Y futs which slammed yields 6bps lower in minutes.
It is not just the US which are volatile this morning: UK government bonds are lower, with larger declines at the long end after reports that Chancellor Reeves dropped plans to raise headline income tax rates. Thirty-year gilt yields rise 10 bps to 5.33%. Gilts found some support after Bloomberg reported Reeves’ decision was driven by an improved fiscal forecast from the budget watchdog.
AI euphoria is facing an acute test, as investors look are finally looking at the massive borrowing to fund the technology’s buildout (something we first warned about over a month ago). Support for the three-year bull market increasingly rests with a strong earnings outlook, and especially next week’s NVDA earnings. Still, foreign inflows into US equity funds are tracking at an annualized $134 billion, the second-biggest year ever after $163 billion in 2024, according to Bank of America citing EPFR Global data. US stocks saw their ninth-straight week of inflows through Nov. 12 at $6.4 billion. Meanwhile, a rotation from tech into more defensive stocks has helped the S&P 500 limit losses to just over 2% since its last record high toward the end of October, while the Nasdaq 100 has dropped nearly twice as much.
“The nervousness is palpable on markets and it stems from different corners,” said Arnaud Girod, head of economics and cross-asset strategy at Kepler Cheuvreux in Paris. “Any pushback from the Fed on interest rate cuts is bad news. If the Fed hasn’t enough data, they are likely not to cut.”
That said, while the market-cap weighted S&P has faced volatility and a recent downturn, beneath the surface, US equities remain healthy, lifting the equal-weighted index and underscoring the broader market’s reliance on, and concentration risk around, AI according to Bloomberg.
“We’ve seen tech stocks suffer the biggest repercussions each time there’s been a setback, and that’s because they trade at the frothiest valuations,” said Aneeka Gupta, director of macro research at Wisdom Tree UK. “Whenever there are question marks on whether there is a higher probability of a hawkish Fed stance, the segments that get hit the most are the highest duration ones.”
In trade news, Trump is readying substantial tariff cuts aimed at tackling high food prices and a series of new trade deals. Meanwhile an agreement with Switzerland could be close.
European stocks are broadly lower, including in the UK where the FTSE 100 drops 1.4%. UK equities underperformed on reports of a U-turn by Chancellor of the Exchequer Rachel Reeves on income tax hikes. Siemens Energy led energy stocks higher after raising guidance, while banks and tech shares were among the biggest laggards. Here are some of the biggest movers on Friday:
Earlier in the session, Asian stocks declined, led by technology-heavy markets, as concerns over lofty valuations and uncertainty around the Federal Reserve’s rate outlook dampened sentiment. The MSCI Asia Pacific Index dropped as much as 1.7% on Friday to head for its biggest decline since April. Technology megacaps including TSMC, SK Hynix and Samsung Electronics were the major drags. South Korea posted the steepest loss in the region, while Japan’s Nikkei 225, Taiwan’s Taiex index and the Hang Seng China Enterprises Index all dropped over 1.5%. In China, economic activity cooled more than expected at the start of the fourth quarter, with an unprecedented slump in investment and slower growth in industrial output adding to a drag from sluggish consumption. The onshore CSI 300 Index closed 1.6% lower, the most in nearly a month.
“The market sell off is mainly driven by disappointing macro economic data and increasing concern on leading e-commerce companies profitability,” said Jason Chan, senior investment strategist at Bank of East Asia in Hong Kong. “Also, many cities in Fujian province announced the trade-in subsidy of auto will be suspended in November, which heightens policy uncertainty on consumption stimulus.”
In FX, the BBG Dollar index saw a sudden airpocket led by yield differentials as 10Y yields tumbled 6bps just after 7am ET. The pound pared losses but remains down 0.4%.
In rates, treasuries erased losses in early US trading amid a curve-steepening rout in gilts, where reports that UK government will drop a proposed income tax increase have sparked jitters about its fiscal credibility. US yields retreated from session highs reached during the gilt selloff as US stock index futures slide, led by European equity markets. Front-end Treasury yields are lower by 2bp-3bp with long-end tenors little changed, steepening 2s10s and 5s30s spreads; 10-year, about 2bp lower on the day near 4.10%, peaked near 4.14% as UK 10-year yield surged as much as 13bp. UK yields remain cheaper by 4bp-10bp across a steeper curve after reports that Chancellor Rachel Reeves will drop a widely-expected income-tax increase in this month’s budget. US session includes three scheduled Fed speakers, while economic data continues to be delayed as the US government recuperates from its record-length shutdown.
In commodities, oil prices jump after a drone strike damaged an oil depot and a vessel at Russia’s Black Sea port of Novorossiysk. WTI crude rises 2.6% to near $60.20 a barrel. Gold slips about $9 to $4,162 an ounce, while Bitcoin falls 1.8% to around $97,000.
US economic calendar expected to continue to face delays as government reopens; October retail sales and PPI were scheduled to be released Friday. Fed speaker slate includes Schmid (10:05am), Logan (2:30pm) and Bostic (3:20pm)
A more detailed look at global markets courtesy of Newsquawk
APAC stocks were pressured following the sell-off stateside, where tech was hit on valuation and China AI race concerns, while sentiment was also not helped by recent hawkish-leaning Fed rhetoric and mixed Chinese activity data. ASX 200 was dragged lower by weakness in tech and with nearly all sectors in the red aside from energy. Nikkei 225 dipped beneath the 51,000 level and was among the worst performers amid earnings results and tech woes. Hang Seng and Shanghai Comp declined with participants digested the recent data releases, including mixed activity data in which Industrial Production disappointed and Retail Sales marginally topped estimates, but both showed a slowdown from the previous, while Chinese House Prices continued to contract. Nonetheless, the downside in the mainland was somewhat cushioned with China pledging to expand domestic demand and stabilise trade.
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European Equities – Opened broadly lower, with all major indices in the red as sentiment soured following weakness in APAC trade, where tech underperformed on valuation and China AI concerns. Recent hawkish Fed rhetoric and mixed Chinese data also weighed. UK headlines dominated the morning, with reports that PM Starmer and Chancellor Reeves will scrap plans to raise income tax, further pressuring the FTSE 100 (-1.2%). EZ GDP and employment data were largely shrugged off, while attention now turns to ECB’s Buch, Elderson, and Lane. European sectors – Opened mostly lower, with only Energy (+1.0%) and Consumer Products & Services (+0.7%) in positive territory. The latter was lifted by Richemont (+8.0%) after stronger-than-expected H1 revenue and profit, while Energy gained on elevated crude prices following a Ukrainian drone strike on Russia’s Novorossiysk oil depot and upbeat results from Siemens Energy (+9.9%), which raised 2026 guidance. Laggards include Technology (-2.7%), Banks (-2.0%), and Basic Resources (-2.0%). Tech mirrored US weakness amid renewed US-China AI race concerns, while softer Chinese industrial output weighed on resources. Banks underperformed on UK political turbulence, with HSBC (-2.8%), Lloyds (-3.4%), and Barclays (-2.8%) all lower.
It’s certainly been a volatile week in terms of sentiment with relief over the end of the shutdown vying with concerns over AI valuations and whether the Fed will cut rates again after several speakers have struck a more cautious tone this week. The S&P 500 (-1.66%) posted its worst day in over a month with a December cut probability falling sharply from around 59% at Wednesday’s close to 49% last night. Standby for a likely deluge of data next week to test this pricing in both directions.
On those releases, yesterday we heard NEC Director Kevin Hassett say that the September jobs report might get released next week. That release should have come out on October 3, so just a couple of days after the shutdown began, and the data collection for that had already been completed when the shutdown started. Then for the October jobs report (which would have normally been out on November 7), Hasset said on Fox News that “We’re going to get half the employment report. We’ll get the jobs part, but we won’t get the unemployment rate”.
Ahead of those releases, we heard from a few Fed speakers yesterday, who struck a cautious tone on the policy outlook. For instance, San Francisco President Daly said that she had “an open mind” on the decision in December. Cleveland Fed President Hammack said “we’ve got this persistent high inflation that is sticking around”, and that getting inflation “back to 2% is critical for our credibility, and that’s our objective”. St Louis Fed President Musalem (a voter this year) noted that “We need to proceed and tread with caution, because I think there’s limited room for further easing”. And Minneapolis Fed President Kashkari suggested that he didn’t support the Fed’s last rate cut in October and that he was undecided on December. So regional Fed presidents not sounding like they are rushing into rate cuts, and futures dialled back the likelihood of a December cut to 49% by the close, down from 59% the previous day.
Clearly, it’s this upcoming wave of data that will help determine whether we actually get a December cut, but there was a clear market reaction to that Fedspeak in the meantime. US equities lost ground across the board, with the S&P 500 (-1.66%) slumping after a run of 4 consecutive gains. The decline was driven by the more cyclical sectors, with the NASDAQ (-2.29%) and the Magnificent 7 (-2.69%) posting even larger declines led by Nvidia (-3.58%) and Tesla (-6.64%). Epitomising yesterday’s struggles for momentum stocks, Robinhood Markets (-8.61%) was the worst performer in the S&P 500 after unveiling a cash delivery service. Still, its shares are up +226% year-to-date. Meanwhile, Walt Disney (-7.75%) was the third worst-performer in the S&P after its Q4 revenue missed estimates. While defensive sectors fared less badly, the equal-weighted S&P 500 (-1.18%) also saw its worst day since the US-China trade escalation five weeks ago.
Rising volatility saw the VIX index (+2.49pts) spike back to exactly 20.0 at the close, with many other asset classes also struggling. Bitcoin (-3.08% to $98,756) fell to its lowest level since early May, extending the decline from its early October peak to -21%. Credit spreads widened, with US IG and HY +1bps and +8bps wider respectively. And historical safe havens of gold (-0.57%) and the dollar (-0.34%) weren’t spared either.
This backdrop also weighed on US Treasuries, with yields rising as investors priced in fewer rate cuts. For example, if we look at the December 2026 meeting, investors were pricing in 81bps of cuts by the close, down -1.8bps on the day. So it wasn’t just the next meeting that was being priced in a more hawkish direction. In turn, that pushed yields higher, with the 2yr yield (+2.2bps) moving up to 3.59%, whilst the 10yr yield (+5.0bps) was up to 4.12%. Long-end Treasuries weren’t helped by a softish 30yr auction that saw $25bn of bonds issued +1.0bps above the pre-sale yield, leaving 30yr yields +4.8bps higher on the day. US yields are back down around a basis point across the curve in Asia this morning.
Earlier in Europe, markets followed a very similar direction to the US, with equities and bonds both selling off. In the UK, sentiment wasn’t helped by an underwhelming GDP report, which showed Q3 GDP growth at just +0.1% (vs. +0.2% expected), whilst the major equity indices lost ground across the continent. So the STOXX 600 (-0.61%) fell back after a 3-day run of gains, with the FTSE 100 (-1.05%) and the DAX (-1.39%) leading the declines. And sovereign bond yields moved consistently higher too, with those on 10yr bunds (+4.4bps), OATs (+3.9bps) and BTPs (+4.8bps) all rising.
Here in the UK, sterling is trading -0.39% lower this morning after the FT reported late last night that Prime Minister Keir Starmer and Chancellor Rachel Reeves have ditched plans to increase income tax rates with the budget announcement on November 26. The politics of breaking a manifesto pledge are seemingly forcing their hands if the story is correct. Gilts have outperformed recently on the expectations of significant tax rises in the budget so this could bring some reversal of that.
Asian markets are weak this morning, following on from the US losses with weak monthly China data also a focus. As I check my screens, the KOSPI (-3.51%) is experiencing the most significant losses, followed by the Nikkei (-1.70%), the S&P/ASX 200 (-1.37%), the Hang Seng (-1.36%), the CSI (-0.81%), and the Shanghai Composite (-0.25%). S&P 500 (+0.03%) and NASDAQ 100 (-0.01%) have actually stabilised this morning.
Turning our attention back to China, industrial production increased by +4.3% year-on-year in October, which was below expectations and a decrease from a three-month high of +6.5%, as local manufacturers contend with weak domestic demand and trade tensions with the US. This represents the slowest growth in industrial production since August 2024. Simultaneously, retail sales rose by +2.9% year-on-year in October, surpassing market expectations of +2.7% but down from the 3.0% increase observed in the previous month. In a separate report, new home prices fell by -0.45% month-on-month in October, marking the steepest monthly decline in a year, which underscores the persistently weak demand in the beleaguered property sector which may require additional policy support. This follows a -0.41% decrease in September. September and October are typically peak sales periods.
In the commodities market, Brent crude prices surged above $64 per barrel overnight before retracting some gains to close +1.48% higher, settling at $63.94 per barrel all due to supply concerns following a Ukrainian drone strike on an oil depot in the Russian Black Sea port of Novorossiysk, a key export hub.
To the day ahead now, and data releases include the second estimate of Q3 GDP in the Euro Area, and the final October CPI reading for France. Otherwise, central bank speakers include the ECB’s Escriva, Vujcic, Elderson and Lane, along with the Fed’s Schmid, Logan and Bostic.
