Stocks reel as AI fears dominate market action

(Reuters) - Global markets retreated on Friday as 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 (.MIWD00000PUS) rallied off intra-session lows to trade flat, but the benchmark was still on track for its worst weekly performance since mid-November, with a decline of 1.6%.

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.

"It's almost been a week of two halves. You've had the AI software worries at the start of the week and then the AI spending worries at the end of the week," Fiona Cincotta, senior market analyst at City Index, said.

"And I think combined that just shows how sensitive and how nervous the market actually is with regards to the entire AI story."

Stocks on Wall Street sold off on Thursday for a third straight day on AI fears, pushing the S&P 500 (.SPX) into negative territory for the year after survey data showed layoffs announced by U.S. employers surged in January to the highest level for the month in 17 years, fuelled concern about the resilience of the U.S. economy.

The S&P 500 software and services index (.SPLRCIS) 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".

"There's a massive rotation that's going on, and Nasdaq is clearly underperforming the S&P and things like boring consumer staple stocks," Prashant Bhayani, chief investment officer for Asia at BNP Paribas Wealth Management, said.

"The market is starting to say 'OK, yeah, AI is very interesting'. But people are also saying 'What is my payback?'"

The downward trend spilled into global markets, with the pan-European Stoxx 600 (.STOXX) last easing slightly, while MSCI's broadest index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> tumbled 0.7% to head for a second straight day of losses.

S&P 500 e-mini futures EScv1 last edged 0.1% higher while Nasdaq e-mini futures NQcv1 were steady.

Japanese stocks rose, with the Nikkei 225 (.N225) up 0.8% ahead of Sunday's election.

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 2.9% to $64,916.60 after earlier falling as much as 4.9% to a low of $60,008.52, while ether was last up 1.64% at $1,877.51, partially recouping a 5.1% decline.

Precious metals were also looking to regain their footing after sharp falls, with silver clawing back 3.3% to $73.57 after having plunged as much as 10%. Gold was last up 1.6% at $4,846.88, after an earlier decline of 2.4%.

"It's just massively risk off," Cincotta said, noting that cryptocurrencies often come under pressure when this type of sentiment emerges.

"And I think what's interesting is those assets such as precious metals, which previously had been considered safe haven, given the huge amount of volatility that we've seen, are not really considered safe havens right now," she added.

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 a 20.7% 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 97.836.

In energy markets, Brent crude climbed 1% to $68.26.

Reporting by Sophie Kiderlin, Gregor Stuart Hunter, Rae Wee and Tom Westbrook; Editing by Shri Navaratnam, Jacqueline Wong and Andrew Heavens

investorsHD

inHD