World stock markets tumbled on Friday as investor optimism for an imminent Federal Reserve rate cut faded, while concerns over a potential AI-driven market bubble and limited economic data heightened volatility across global equities.

Blue-chip indices across Tokyo, Paris, and London were deep in the red, with UK markets further rattled by uncertainty surrounding the country’s upcoming budget. U.S. stock futures indicated a weak open for Wall Street after major declines on Thursday.

Fed Rate-Cut Expectations Shift

Investor sentiment shifted as Federal Reserve officials adopted a more hawkish stance, citing persistent inflation pressures and relative stability in the U.S. labor market following two rate cuts earlier this year. Markets now assign roughly a 49% probability of a quarter-point Fed rate cut in December, down from just over 60% earlier this week.

Jeremy Stretch, head of G10 FX Strategy at CIBC Markets in London, said:
“Until we get the delayed data, we are in a holding pattern. We are back to 50-50 on a December rate cut and this, alongside concerns about an AI bubble, has destabilized sentiment.”

Technology Sector Bears the Brunt

High-growth tech stocks experienced sharp declines, reflecting market fears of overvaluation amid AI hype. Shares of Palantir and Oracle fell around 15% over the past two weeks, while Nvidia dropped nearly 8%. Analysts warned that the recent corrections in high-beta tech names highlight lingering risks despite strong performance earlier in the year.

Global Market Reactions

• Asia: MSCI’s broadest gauge of Asian shares outside Japan fell almost 2%, while Japan’s Nikkei declined 1.8% and South Korea’s Kospi dropped 3.8%.
• China: Shares eased 0.9% after October data revealed slowing industrial output and retail sales, quashing a brief market rally.
• Safe-Haven Assets: Treasury bonds attracted demand, with two-year yields slightly lower at 3.58% and 10-year yields up 1.4 basis points to 4.12%.

The U.S. dollar retreated slightly, with the dollar index at 99.19, while the yen gained some respite, trading at 154.48 per dollar. The Swiss franc appreciated marginally, while the euro remained around $1.16.

UK Market Volatility

In the UK, sterling fluctuated sharply amid speculation over Prime Minister Keir Starmer’s budget proposals. Initially falling following reports that plans to raise income tax rates had been scrapped, the pound recovered some losses. UK gilt yields rose before easing slightly, with 10-year yields up approximately 6 basis points to 4.50%.

Commodities React

Oil prices jumped after a Ukrainian drone attack damaged a Russian oil depot, lifting Brent crude futures 1% to $63.65. Gold remained largely unchanged at $4,173 per ounce, after a 0.6% drop overnight, though still below its record peak of $4,381.