Global Stocks Decline as AI Selloff Intensifies, Cryptocurrencies Recover

Market Overview and Key Trends

By Gregor Stuart Hunter

SINGAPORE, Feb 6 (Reuters) - Global equities extended losses into a third day on Friday as a selloff on Wall Street intensified, with precious metals and cryptocurrencies gripped by wrenching volatility.

MSCI's broadest index of Asia-Pacific shares outside Japan tumbled 1% to mark a second day of losses, led by a 5% dive for South Korea's Kospi which triggered a brief trading halt shortly after the open. S&P 500 e-mini futures slid 0.2% and Nasdaq e-mini futures fell 0.4%. "Investors are questioning their commitment to the pillars that have underpinned markets over the past six months: AI, crypto, and precious metals," said Tony Sycamore, market analyst at IG in Sydney. "This raises the odds of a deeper unwind." Stocks sold off overnight on fears that new AI models may start to eat into the profits of software firms, with the S&P 500 turning negative for the year as fears around the labour market grew.

Impact of AI on Stock Markets

Layoffs announced by U.S. employers surged in January to the highest level for the month in 17 years, a survey from global outplacement firm Challenger, Gray & Christmas showed on Thursday.

Cryptocurrency Market Recovery

Precious metals rallied off their lows but were still down for the day, with gold falling 0.1% at $4,764.43 and silver plunging as much as 10% before recovering. The white metal was last down 1.4% at $70.26.

Cryptocurrency markets reversed losses after breaching several milestones in a $2 trillion wipeout on Thursday, with bitcoin surging 3.7% to $65,446.07 after earlier falling as much as 4.9% to a low of $60,008.52. Ether was last up 4.4% at $1,928.12, overturning an earlier 5.1% decline.

The S&P 500 software and services index dropped 4.6%, having shed about $1 trillion in market value since January 28, in a selloff dubbed "software-mageddon."

"You've seen a lot of these big crowded positions being unwound very, very aggressively and that's led to massive flows," said Chris Weston, head of research at Pepperstone Group in Melbourne. "We're getting to a stage where we could see, later this year, casualties," he added.

"Certain businesses - not the Mag7 - but for some of the smaller businesses, the capital markets may not be so kind," he said, referring to the so-called Magnificent Seven mega-cap technology stocks.

Amazon shares tumbled 11.5% in after-hours trading on Thursday after it projected a surge of more than 50% in capital expenditures this year.

Federal Reserve's Policy Outlook

The market is starting to bet on an increased likelihood of policy easing by the Federal Reserve at its next meeting, though most still expect it to remain on hold.

Fed funds futures are pricing a 22.7% probability of a 25-basis-point cut at the U.S. central bank's next 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 recently flat at 97.92. The yield on the U.S. 10-year Treasury bond was last down 2.8 basis points at 4.18%.

The yen rallied 0.3% to 156.58 against the dollar and Japanese government bonds attracted buyers across the curve ahead of Sunday's election.

In energy markets, Brent crude was last down 0.4% at $67.31.

(Reporting by Gregor Stuart Hunter and Tom Westbrook; Editing by Shri Navaratnam and Thomas Derpinghaus)