TSX futures drop amid gold price fall, AI anxieties

Futures linked to Canada’s main stock index edged lower on Friday, weighed down by a drop in gold prices, while technology names were pressured by jitters swirled around artificial intelligence spending.

By 06:37 ET (10:37 GMT), the S&P/TSX 60 index standard futures contract had dropped by 6 points, or 0.3%.

The S&P/TSX composite index finished down by 1% at 35,973.45 on Thursday, retreating from its highest closing level since September in the preceding session.

Shares of Celestica, an electronic gear provider analysts cited by Reuters said was closely linked to the AI trade, slumped by 12%, dragging down the broader domestic tech sector by 1.6%.

Sliding gold prices also dented metal mining shares, which retreated to their lowest closing level since August 4.

U.S. futures slip

U.S. stock futures mostly declined on Friday following a tech-sector selloff in the prior session, as investors assessed anxieties around artificial intelligence financing, elevated oil prices, and French bond market ructions.

By 05:57 ET (09:57 GMT), the S&P 500 futures contract had dipped by 17 points, or 0.2%, and Nasdaq 100 futures were mostly unchanged. The Dow futures contract dropped by 312 points, or 0.6%.

The main averages were broadly lower on Thursday, with the Nasdaq Composite slumping by 2.6% -- the worst day for the tech-heavy index since June. The selloff reflected growing uncertainty over whether companies will be able to access the massive capital spending required to fund the next round of AI infrastructure development.

"AI sentiment and positioning have swung aggressively towards the negative end of the spectrum in the immediate term, which could help the group to bounce, but the industry has permanently entered a new era, one characterized by less hospitable capital markets," analysts at Vital Knowledge said in a note.

Sparking these worries was Instagram-owner Meta Platforms, which announced plans to issue a new class of non-voting shares, partially as a strategy to help raise funds for its AI ambitions. With free cash flows turning negative and borrowing costs expected to rise in the coming months, tech groups like Meta are anticipated to sell stock to bolster their AI funding efforts.

Fears have abounded that such dilution could dent share prices. Meta’s stock price slipped to its largest decline since July.

Further compounding these worries, Nvidia CEO Jensen Huang told CNBC that there is "a scarcity of capital" for the AI buildout, adding "the demand for capital is much greater than the availability." Nvidia’s shares retreated, as did those of peer Advanced Micro Devices. A tracker of the semiconductor industry shed 6.7%.

"Concerns have mounted that they are driving up financing costs and won’t generate sufficient returns to justify their huge investments. Now, another concern is moving to the forefront: Does enough capital even exist to finance everyone’s ambitious AI spending plans?" analysts at Yardeni Research said in a note.

Against this backdrop, investors sought safety in government bonds, sending the benchmark 10-year U.S. Treasury yield down nearly 20 basis points to around 4.95%, its biggest daily decline since March 2023. Yields tend to move inversely to bond prices.

The rally in U.S. bonds stood in contrast to ongoing stress in debt markets in France, where traders are grappling with continued social unrest and a precarious fiscal position. French bond yields were last trading lower, steadying after a steep jump on Thursday.

Oil prices added to the uncertain outlook. Brent crude extended gains on Friday, touching the $114-per-barrel level for the first time since May. Fears have abounded that intensifying geopolitical tensions could disrupt a recent rebound in Middle Eastern energy supplies.

Meanwhile, Gold prices were on track for their sharpest weekly decline in more than four months, hit by inflation worries fueled by a fresh climb in oil prices.

Despite the prospect of energy-driven inflationary pressures, the Federal Reserve is tipped to skip an interest rate increase at its upcoming policy meeting next week. Following the first rate hike since 2023 in September, some Fed policymakers have played down the urgency of an imminent bump, but flagged a need to cool inflation to its 2% target level. The central bank is expected to raise rates at its final gathering of the year in December.

Higher rates can weigh on gold by increasing the opportunity cost of holding the non-yielding asset.

Investors will now look for further earnings updates and fresh economic data.

In individual stocks, shares of Western Digital fell by more than 1% in premarket U.S. trading, despite the digital storage provider logging solid quarterly returns. Supercharged by runaway demand for the large amounts of memory storage needed to run AI systems, have soared by more than 88% so far this year.

On the economic calendar, a preliminary reading of U.S. business activity in October is due out, as well as the final monthly gauge of American consumer sentiment from the University of Michigan.