AI Sell-Off Triggers Global Stock Retreat; December Rate Cut Odds Fall

The euro extended its advance on Thursday touching a two-week high of 1.1656. Despite the US government’s reopening and elevated Treasury yields, the US Dollar (USD) failed to regain momentum as markets scaled back expectations for a Federal Reserve rate cut in December.

Risk appetite remained subdued, with US equity markets posting losses even after lawmakers approved a stopgap funding bill to restore federal operations through January 2026. Investors are turning their focus to economic data delayed by the shutdown, which could influence the Federal Reserve’s next policy decision.

A mix of messaging from Fed officials added to the uncertainty. St. Louis Fed President Alberto Musalem, Cleveland Fed’s Beth Hammack, and Minneapolis Fed President Neel Kashkari all highlighted lingering inflation concerns, reinforcing a slightly hawkish tone. In contrast, San Francisco Fed President Mary Daly offered a more dovish perspective, stressing that policymakers should not rule out either option for December and reiterating that the Fed’s 2% inflation target remains central.

In the Eurozone, September Industrial Production recovered modestly to 0.2% month-on-month following a sharp decline in the previous reading, though it missed expectations of 0.7%. Meanwhile, ECB Governing Council member and Bundesbank President Joachim Nagel suggested that any central banker on the Council should be considered eligible to succeed President Christine Lagarde when her term ends.

The reopening of the government allows a backlog of US macroeconomic releases to move forward. Still, the White House cautioned that some key October indicators—such as employment and inflation—may not be fully published. Markets are increasingly expecting September Nonfarm Payrolls to be released next week, though officials indicated that the unemployment rate might remain unavailable.

Gold prices declined on Thursday, reversing earlier gains that had lifted the metal to a three-week high, as a broad risk-off move swept through global markets in the wake of the U.S. government’s reopening.

The pullback followed confirmation that the U.S. government will restart operations after a record 43-day shutdown under a stopgap agreement funding federal agencies through January 30.

Gold had briefly surged to an intraday high of around $4,245—the highest level since October 21—on expectations that delayed economic data would highlight labor-market weakness and potentially push the Federal Reserve toward a December rate cut.

However, sentiment shifted as more Federal Reserve policymakers signaled caution on further easing, citing persistent inflation concerns and signs of relative labor-market stability following two rate cuts earlier this year. Private surveys have continued to point to pockets of employment weakness, but the lack of official data during the shutdown has complicated the policy outlook.

Fed Chair Jerome Powell has also stressed that another rate reduction this year is not assured. Lower interest rates typically support gold, which carries no yield and tends to attract safe-haven flows during periods of economic uncertainty.

Oil prices surged in Asian trading on Friday after reports that a Ukrainian drone attack damaged key infrastructure at the Russian Black Sea port of Novorossiysk, raising concerns over renewed supply disruptions. The rally was further supported by expectations of tighter Russian exports ahead of U.S. sanctions targeting Moscow’s largest oil firms.

The reopening of the U.S. government following a 43-day shutdown also lent some support, with traders anticipating an improvement in U.S. fuel demand. However, worries about a potential supply glut in 2026 and a larger-than-expected build in U.S. crude inventories continued to weigh on the broader outlook.

Traders moved quickly to price in geopolitical risk after early-Friday reports indicated that Ukrainian drones had struck multiple facilities in Novorossiysk, including a major oil depot. The incident heightened fears of further supply disruptions and added a fresh risk premium to crude markets.

Additional support came from expectations that upcoming U.S. sanctions on Rosneft and Lukoil—set to take effect on November 21—could tighten Russian supply. Both companies have reportedly begun scaling back operations in anticipation of the deadline. The sanctions, announced in late October, are aimed at pressuring Moscow to agree to a ceasefire, though little diplomatic progress has been made.

U.S. stocks fell sharply on Thursday, with major indexes pressured by a continued rotation out of big tech and fading expectations for a Federal Reserve rate cut in December. The declines came even as the U.S. government officially reopened, ending the longest shutdown in the nation’s history.

Market sentiment weakened after a series of cautious remarks from Federal Reserve officials, which prompted traders to reassess the likelihood of a December rate cut.

President Donald Trump signed a funding bill late Wednesday to end the 43-day government shutdown after the Republican-led House approved the measure in a narrow 222–209 vote. The legislation keeps the government funded through January 30.

The shutdown caused broad disruptions across federal agencies, most visibly in air travel operations, where staffing shortages contributed to thousands of flight cancellations.

Despite sector-wide weakness, Cisco Systems provided a bright spot after raising its full-year guidance. The networking giant now expects fiscal 2026 revenue between $60.2 billion and $61 billion, up from a prior forecast of $59 billion to $60 billion, citing strong demand for AI-driven data center expansion.

Elsewhere, Walt Disney shares fell after the company reported a decline in fourth-quarter revenue, weighed down by lackluster performance from its latest film releases. Flutter Entertainment slipped after the sports-betting giant cut its full-year guidance, citing unfavorable win rates for gamblers.

Starbucks shares also edged lower as its workers’ union launched a strike across at least 40 cities on Red Cup Day—one of the chain’s busiest promotional events—adding to operational headwinds.