Futures Tumble As AI Euphoria Goes Into Reverse

Futures Tumble As AI Euphoria Goes Into Reverse

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%)

• AI-related energy stocks are sliding: Bloom Energy -8%, Oklo -7.7%, NuScale Power -8%, Nano Nuclear Energy -7.3%, Plug Power -7.2%, IREN -9%
• Applied Materials (AMAT) declines 6.5%. The chip-equipment maker suffered a sales decline last quarter and predicted another drop in the current period, though the company sees demand improving in the second half of 2026.
• Avadel Pharma (AVDL) jumps 18% after the pharmaceutical company said it received an unsolicited proposal from H. Lundbeck A/S to acquire it for up to $23.00 per ordinary share.
• Cidara Therapeutics (CDTX) is up 104% after Merck & Co. agreed to acquire the biotech company, which is developing a flu treatment.
• Gap Inc. (GAP) is up 1.6% after Jefferies upgraded the clothing retailer to buy from hold.
• Red Cat Holdings (RCAT) plunges 17% after the drone company’s FY25 revenue forecast missed the average analyst estimate.
• Stubhub (STUB) tumbles 19% as analysts note that it was surprising that the ticketing platform did not provide a forecast for the current quarter. It was the firm’s first quarterly report after going public in September.
• TripAdvisor Inc. (TRIP) is up 0.8% after Mizuho Securities upgraded the online travel agency to neutral from underperform.
• Warner Bros Discovery (WBD) is up 2.8% after the WSJ reported Paramount, Comcast and Netflix are preparing bids for the media company, citing people familiar. Separately, the owner of HBO and CNN in a filing said CEO David Zaslav’s employment agreement was amended amid a strategic review.

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:

• Bechtle shares surge as much as 17%, the most in eight months, after the supplier of computers and office supplies reported a significant improvement in earnings in the third quarter compared to the second.
• Siemens Energy shares are up as much as 12%, the most since April, after the German energy company raised Ebitda guidance above consensus, citing strong demand for gas turbines and data center equipment.
• Richemont shares gain as much as 8.7%, the steepest advance since April, after the Swiss luxury-goods maker reported first-half results that beat analyst expectations across divisions and regions, particularly driven by strong demand for its jewelry brands.
• Orkla shares gain as much as 6.7%, the most since May, after the Norwegian consumer goods firm reported what DNB Carnegie said were slightly positive earnings.
• Alstom shares advance as much as 7.2%, the most since June, as analysts laud the company’s latest earnings as a reassuring and strong showing from the French rolling stock company.
• Bavarian Nordic shares drop as much as 7.8% to the lowest since July after the Danish vaccine maker’s revenue guidance for the full year was weaker than expected.
• Sonova shares drop as much as 6.1% to the lowest intraday since September 2020 after the Swiss hearing-aid maker reported weaker-than-expected Ebita for the first half-year.
• Swiss Re shares slip as much as 5.1%, the most since April, after posting a “mixed” quarter in the eyes of analysts.
• Goodwin shares drop as much as 12% after the Goodwin family sold 122,368 ordinary shares in the company to a limited number of institutional investors.
• Land Securities shares fall as much as 5% after the UK real estate firm reported lower-than-expected net asset value and dividends.

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)

Market Snapshot

• S&P 500 mini -0.3%
• Nasdaq 100 mini -0.6%
• Russell 2000 mini -0.3%
• Stoxx Europe 600 -1.2%
• DAX -0.9%
• CAC 40 -0.9%
• 10-year Treasury yield +1 basis point at 4.13%
• VIX +1.2 points at 21.2
• Bloomberg Dollar Index +0.1% at 1217.34
• euro -0.1% at $1.1616
• WTI crude +2.8% at $60.31/barrel

Top Overnight News

• The White House unveiled trade deals with Argentina, Ecuador, Guatemala, and El Salvador as part of an initiative to reduce food prices/ address affordability challenges for American consumers. FT
• Ukrainian drones attacked Russia’s giant Black Sea port of Novorossiysk overnight, prompting a state of emergency. Moscow launched a massive air strike on Kyiv that killed four and damaged several residential buildings. BBG
• NEC Director Hassett said he expects to see 60k job losses due to the government shutdown, while he responded that the numbers they have are consistent with more rate cuts, when asked about inflation.
• Signs of weakness in China’s economy stretched into October, with one measure of investment notching the sharpest slowdown in years. Retail sales was about inline at +2.9% (vs. the Street +2.8% and down from +3% in Sept) while industrial production fell short at +4.9% (vs. the Street +5.5% and down from +6.5% in Sept) and fixed asset and property investment declined at one of the sharpest rates in years. WSJ
• Sir Keir Starmer and Reachel Reeves have ditched their manifesto-busting plan to increase income tax rates, in a dramatic U-turn ahead of the Budget on Nov 26 that sparked a sell of in the gilt mkt. FT
• China’s unreported gold purchases could be more than 10x its official figures as it quietly tries to diversify away form the USD, highlighting the increasingly opaque sources of demand behind bullion’s record-breaking rally. FT
• Brazil hopes to reach a preliminary agreement with the US as soon as this month. India and Canada will work together to secure supply chains in critical minerals and clean energy, signaling a reset in bilateral ties. BBG
• Canada’s forestry industry plans to divert a significant shares of its wood exports from the US to new intl mkts, claiming that Trump’s latest trade tariffs will lead to lumber shortages and drive up building costs in America. FT
• Palantir is planning a “significant investment” in the UK to win military contracts, even as the software company has complained about slow traction in Europe.
• Paramount, Comcast and Netflix are preparing bids for Warner Bros. Discovery. WSJ

Trade/Tariffs

• US President Trump's administration is preparing tariff exemptions in a bid to lower food prices, according to NYT
• US Secretary of State Rubio met with Brazil's Foreign Minister and discussed a reciprocal framework for the US-Brazil trade relationship, according to the State Department
• US senior official said agreements with Argentina, Ecuador, El Salvador and Guatemala open markets to US agricultural and industrial products, expects full agreements with most of these countries to be finalised within the next two weeks, in which the four countries agreed not to impose digital service taxes. Furthermore, the tariff rates will remain for these countries, but framework agreements will provide relief in certain areas, including bananas.
• US senior official said talks with Switzerland on Thursday were very positive, and if the deal is accepted by US President Trump, we would see a reduction of tariffs on Swiss imports. The official also commented that they have made a lot of advances with Taiwan.
• South Korea announced the factsheet with the US was finalised and President Lee said that US President Trump made a rational decision for the factsheet, while Lee added they agreed that investment in the US will be limited to commercially viable projects and that South Korea and the US will build a new partnership for shipbuilding, AI and the nuclear industry. Lee stated that the sides agreed on South Korea building a nuclear-powered submarine, and South Korea will strengthen ties with companies like NVIDIA.
• South Korean Presidential Adviser said the US will give South Korea chip tariff terms that are no less favourable than Taiwan’s, while it was agreed with the US that forex market stability needs to be ensured and that the amount and timing of fund supply to the US can be adjusted if needed for forex stability.
• White House said the US and South Korea deal includes USD 150bln of Korean investment in the shipbuilding sector approved by the US and USD 200bln of additional Korean investment committed pursuant to an MOU on strategic investments, while the US has given approval for South Korea to build nuclear-powered attack submarines. US said it will reduce its Section 232 sectoral tariffs on automobiles, auto parts, timber, lumber and wood derivatives of South Korea to 15%, and for any Section 232 tariffs imposed on pharmaceuticals, the US intends to apply a tariff rate no greater than 15% to originating goods of South Korea. Furthermore, South Korea is committed to spending USD 25bln on US military equipment purchases by 2030 and shared its plan to provide comprehensive support for US Forces Korea amounting to USD 33bln in accordance with South Korean legal requirements, while the US agreed that South Korea will pay USD 20bln annual phased instalments as part of the trade deal.

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.

Top Asian News

• China stats bureau spokesperson said the economy was generally stable in October, but pressure to adjust the domestic economic structure remains high and stabilisation faces some challenges, while China is to improve the effectiveness of macro policies and to pursue higher-quality economic growth. China will also expand domestic demand on all fronts and will further spur private investment vitality. Furthermore, the spokesperson said China’s investment space and potential remain huge and that China will stabilise trade and help trade firms that have been heavily hit.
• South Korean Fina

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