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 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, have 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.
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 the whole scheme of things, it's (stocks) only got back to where it was a couple of days ago," said Nutshell Asset Management CIO Mark Ellis.
"But it did feel like significant liquidations, especially in those high-beta tech names, which have done so well year to date."
Chinese shares eased 0.9% 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, however, was whipped around by British budget speculation. It fell sharply after the Financial Times reported that Prime Minister Keir Starmer and finance minister Rachel Reeves have ditched their party manifesto-busting plan to increase income tax rates, before recovering some ground.
British government bond yields also rose sharply before pulling back. Ten-year UK gilt yields were last up around 6 bps on the day at 4.50%.
"There's been leaks and rumours about this budget for ages. It's got to be the most telegraphed budget ever," said Nutshell Asset Management's Ellis.
Oil prices jumped after a Ukrainian drone attack damaged a Russian oil depot, sending Brent crude futures 1% higher to $63.65.
Spot gold prices were little changed on the day at $4,173 per ounce, having lost 0.6% overnight to snap a four-day winning streak. However, the yellow metal remains far from its record top of $4,381.
