Stocks, bitcoin stabilise; investors ponder risks to ‘AI sugar rush’

By Sophie Kiderlin

LONDON/SINGAPORE, Feb 6 (Reuters) – Global markets were set for their biggest decline on Friday since mid-November after a stock rout on Wall Street went global, with volatility gripping precious metals and cryptocurrencies while AI fears weighed on equities.

The MSCI All-Country World Index rallied off intra-session lows to trade 0.1% higher, but the benchmark was still on track to tumble around 1.6% across the week.

A projected $600-billion AI spending spree by Amazon, Microsoft, Google and Meta this year has fuelled fears about the cost of the artificial intelligence boom, while concerns about disruption in sectors including software and data services continued.

“Is the AI sugar rush over? That is the question dominating markets this week as volatility resurfaced and software stocks sold off. Headlines that would have pushed shares to fresh highs during the peak of AI optimism are now being interpreted far more cautiously by investors,” said Carlota Estragues Lopez, equity strategist at St. James’s Place.

S&P 500 e-mini futures EScv1 were last 0.5% higher, while Nasdaq e-mini futures NQcv1 rose 0.6%, suggesting Wall Street may get some respite after a third straight day of declines driven by AI fears.

The S&P 500 fell into negative territory for the year on Thursday after survey data showed layoffs announced by U.S. employers surged in January to the highest level for the month in 17 years, fuelling concern about the resilience of the U.S. economy.  

The S&P 500 software and services index dropped 4.6% on Thursday, having shed about $1 trillion in market value since January 28, in what traders and investors have called “software-mageddon”.

“It’s not just return on investment that worries investors, but also the risk of narrow market leadership that struggles to broaden beyond a handful of mega-cap names. Software companies, once viewed as prime AI beneficiaries, are increasingly seen as vulnerable to AI disruption,” Estragues Lopez said.

The downward trend has reverberated through global markets this week, with MSCI’s broadest index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> tumbling 0.7% to head for a second straight day of losses.

The pan-European Stoxx 600 was last up by around 0.4% after having started the day in negative territory as it tried to shake off tech-related worries.

TESTING TIME FOR SPECULATIVE TRADERS

Cryptocurrencies managed to staunch a bruising selloff for now after a wipeout on Thursday, part of a larger decline that has knocked $2 trillion in value from the market since October.

Bitcoin rallied 5.2% to $66,376.70 after earlier falling as much as 4.9% to a low of $60,008.52, while ether was last up 4.1% at $1,921.70, mostly recouping a 5.1% decline.

Precious metals were also looking to regain their footing after sharp falls, with silver clawing back 4% to $74.04 after having plunged as much as 10%. Gold was last up 2.3% at $4,877.59 after an earlier decline of 2.4%.

Looking ahead, Japanese markets are set to come back into focus as investors keep a close eye on Sunday’s election, in which Prime Minister Sanae Takaichi aims to strengthen her majority in parliament. Japanese stocks ended the week higher, with the Nikkei 225 up 0.8%.

“The outcome of the upcoming election will be key for the Japanese economy and markets as Takaichi intends to pursue an expansionary fiscal policy, despite the country’s already high debt. This would affect the yen, which has come under pressure recently, with USD-JPY almost reaching 160, and Japanese govvies, the yields of which have risen significantly in the past few months,” UniCredit strategists said in a note. 

BETS MOUNT ON FED RESPONSE

On the U.S. monetary policy front, the market is starting to bet on an increased likelihood of a rate cut by the Federal Reserve at its next meeting, though most still expect it to remain on hold.

Fed funds futures are pricing in a 16.7% probability of a 25-basis-point cut at the two-day meeting that ends on March 18, compared with a 9.4% chance a day earlier, according to the CME Group’s FedWatch tool.

The U.S. dollar index, which measures the greenback’s strength against a basket of six currencies, was last down 0.1% at 97.834.

In energy markets, Brent crude dipped 0.4% to $67.26.

(Reporting by Sophie Kiderlin, Gregor Stuart Hunter, Rae Wee and Tom Westbrook, additional reporting by Dhara Ranasinghe; Editing by Jacqueline Wong, Andrew Heavens and Gareth Jones)