FTSE 100 hits one-month low as AI bubble fears rise
Shares are falling faster than wickets in Perth at the start of trading in London, as fears of an AI bubble rip through markets again.
Following losses on Wall Street last night, the FTSE 100 share index has dropped by 104 points, or just over 1%, at the start of trading to 9423 points. That’s a one-month low.
Defence firm Babcock (-4.7%) is leading the followers, followed by technology investor Polar Capital, then precious metals producers Endeavour Mining (-4.1%) and Fresnillo (-4.5%).
This follows wild trading in the US yesterday, where stocks initially rallied but then fell back as investors digested forecast-beating results from Nvidia and a mixed US jobs report.
Despite Nvidia’s highly anticipated earnings exceeded expectations, concerns persist around the firms using those chips to invest in AI, spending heavily and driving that demand.
“The people who are selling the semiconductors to help power AI doesn’t alleviate the concerns that some of these hyper-scalers are spending way too much money on building the AI infrastructure,” said Robert Pavlik, senior portfolio manager at Dakota Wealth. “You have the company that’s benefiting it, but the others are still spending too much money.”
Jim Reid, market strategist at Deutsche Bank, says:
it’s been a truly remarkable 24 hours, with a sequence of moves that were almost impossible to predict….
After the world’s largest company reported spectacular results, the stock was up around +5% by 3pm London time. It closed down -3.15%. The broader market followed a similar pattern: the S&P 500 initially climbed +1.93%, only to fade and close down -1.56% as doubts about AI valuations crept back in. That marked the biggest intra-day swing for the S&P since the six days of extreme market turmoil that followed the Liberation Day tariffs in early April. Adding to the negative backdrop for crypto were lingering questions over the crypto market structure bill that’s being worked on in Congress.
Key events
Sarah Butler
Asos has turned to online stylists powered by artificial intelligence as it attempts to win back customers and reverse a fall in sales.
The online fashion retailer said sales had fallen 12% in the year to 31 August, and City analysts predicted another year of declining sales ahead.
The company is testing “Styled for You”, which uses AI trained on its database of 100,000 curated outfits to suggest items that could go together with those a shopper has already bought or has searched.
If a shopper signed up to its loyalty programme is seeking advice on buying a dress, for example, the AI stylist on the Asos website may suggest how the item can be complemented with a jacket and heels or given a more casual look with a sweater and trainers.
The choices offered up are picked from Asos ranges based on consumer trends, and the shopper’s history and preferences are expressed when they sign up to its app. Separately, the site already offers suggestions for all shoppers via an automated feed.
Caution is dominating trading across global markets today, reports Bob Savage, head of markets macro strategy at BNY.
He explains:
This is now the worst week for equities since April, and one that has contained the largest inter-day reversal in shares for the NASDAQ on record. Government spending isn’t turning sentiment. Japan’s new PM unveiled $112bn in stimulus, but the country’s equities still fell more than 2.4%. South Korea dropped even further, with the Kospi shedding 3.8%.
The MSCI rebalancing on Monday, with a shift toward tech, isn’t sufficient to redress the situation either. Budgets will remain a key consideration for the market, with the U.K.’s turn next week key for GBP and gilts. If there is to be a reversal of the reversal, rates will be key. Yesterday’s U.S. jobs report for September didn’t help clarify Fed easing expectations for December.
Mexico’s economy shrinks in Q3
Mexico’s economy is on the brink of recession after new data showed activity shrank in the last quarter.
Mexican GDP shrank by 0.3% in the July-September quarter, the country’s statistics body reported, a time when trade war uncertainty was hitting growth.
If Mexico’s economy were to suffer a contraction in the fourth-quarter, it would fall into a technical recession.
Investors are feeling somewhat “bewildered” after the u-turn that hit markets yesterday, reports Saxo UK investor strategist Neil Wilson.
Stocks on course for worst week since April, SPX [the S&P 500 share index yesterday] suffers biggest intraday swing since April and Bitcoin at lowest since April…but tariffs are not the issue. Is this the shakeout to clear the decks for seasonal rally starting next week or do we think the technicals are just looking too challenging right now?
Investors are feeling a bit bewildered after a sharp reversal in fortunes in yesterday’s US session. Nvidia had rallied at the open and positive stock futures continued into the cash session to see the S&P 500 up 1.9% at its highs before a sudden switch saw sellers take over. The broad market ended down 1.56% for the day in a 235-pt swing from top to bottom. The Nasdaq saw even greater volatility – erasing a gain of 2.6% to finish the day down 2.15%. April 8 was the last time we’ve seen such a swing. It was, in short, a tough day for bulls and a tough day for the Nvidia-will-save-the-market narrative.
Trading may be calmer on Wall Street when today’s session begins in around two and a half hour’s time.
The futures market indicates the Dow Jones Industrial Average could rise by 0.33%, while the broader S&P 500 index is seen opening flat.
Emerging market stocks have been caught up in the sell-off that began in Wall Street yesterday.
MSCI’s index for emerging market equities has tumbled 2.7%, Reuters reports, putting it on track for its worst week since 7 April, when Donald Trump’s ‘Liberation Day’ tariffs sparked a rout.
Strategist: The stock market has peaked, and a three-year downturn is starting,
One market strategist has warned that the stock market has peaked, and a three-year downturn is starting.
Marketwatch has the story:
The global liquidity cycle — best described as the flow of funds through world financial markets — is drying up and this is bearish for equities, says a veteran strategist.
“We’ve been in a bit of a bubble and liquidity is basically being pulled away,” said Michael Howell, chief executive of CrossBorder Capital, a London research firm, in an interview with hedge fund manager Erik Townsend on the MacroVoices podcast. He thinks the speculative phase of the U.S. market has peaked, and there’s going to be a downturn for stocks that could last two or three years.
ECB’s Christine Lagarde: European growth is linked to ‘disappearing’ world
The president of the European Central Bank has warned that Europe’s economic prosperity is geared towards a disappearing world.
Christine Lagarde told the 35th Frankfurt European Banking Congress this morning that Europe’s economy was vulnerable due to changes it the global economy – such as the fracturing of the post-war global order – that have put strain on its export-led growth model.
As Lagarde put it:
Europe’s vulnerabilities stem from having a growth model geared towards a world that is gradually disappearing.
We embraced globalisation more than any other advanced economy. In the two decades before the pandemic, external trade as a share of GDP almost doubled in the EU, while in the United States it barely moved.
This deep integration brought significant benefits: the number of jobs supported by EU exports rose by 75%, reaching almost 40 million – and for many years, this was a source of resilience.
But today, that same openness has become a vulnerability. Exports have become a far less reliable engine of growth, reflecting the changing global landscape.
Bitcoin heads for worst week since June 2022
Today’s 5.5% tumble means bitcoin has shed over a fifth of its value so far this month.
That would make November the worst month for the world’s largest cryptocoin since June 2022, when bitcoin lost 41% of its value.
AJ Bell: Shift in risk appetite away from tech
Stocks are recovering some ground in London, after lurching lower at the start of trading.
The FTSE 100 is still in the red, now down 55 points or 0.6% at 9,472 points.
Dan Coatsworth, head of markets at AJ Bell says there is “a clear shift in risk appetite evident today”, with tech stocks weaker and defensive-style companies such as utilities and consumer healthcare product providers in vogue.
Coatsworth explains:
There is a lingering concern that the AI revolution might take longer than expected to truly transform the way companies do business. People in the late 1990s were right to predict the internet would change the world, they just had to wait a bit longer than initially thought, and that resetting of expectations was central to the bursting of the dotcom bubble.
Importantly, there are many differences between now and the dotcom boom and bust. That offers a glimmer of hope we’re simply seeing a perfectly common market pullback after a fruitful period rather than a full-blown correction.
Companies leading the AI craze are in a strong financial position. There aren’t signs of excess on the market such as back-to-back IPOs, and most of the big names splashing out on tech infrastructure aren’t binary bets on AI as they have solid business operations that already support strong earnings. They’re very much jam today rather than jam tomorrow.
UK company growth slows as firms hunker down ahead of the budget
Newsflash: Growth across the UK private sector has slowed this month, as businesses and consumers brace for next week’s budget.
A new poll of purchasing managers at British firms has found that activity growth has slowed this month, with services companies suffering a drop in new work.
S&P Global’s Flash UK PMI composite output index, which tracks activity in the economy, has fallen to 50.5 this month, down from 52.2 in October, and nearer to the 50-point mark showing stagnation.
Many services companies attributed the slowdown to “heightened client caution” ahead of the Budget, S&P Global says, while manufacturers experienced an uptick in output, following the first rise in a year in October.
Chris Williamson, chief business economist at S&P Global Market Intelligence, suggests the slowdown could encourage the Bank of England to cut interest rates again next month:
November’s flash PMI surveys brought disappointing news on the UK economy. Economic growth has stalled, job losses have accelerated, and business confidence has deteriorated.
The PMI is broadly consistent with no change in GDP in November and a meagre 0.1% quarterly pace of growth so far in the fourth quarter. “Some of this malaise has been blamed on paused spending decisions ahead of the Autumn Budget, but there’s a real chance this pause may turn into a downturn. The drop in confidence about the year ahead reflects growing concerns that business conditions will remain tough in the coming months, largely linked to speculation that further demanddampening measures will be introduced in the Budget.
Concerns over the inflation outlook will meanwhile be further assuaged by a marked drop in selling price inflation to the lowest for nearly five years. Faced by weak demand and intensifying competition, firms are cutting prices to win sales. Prices charged for goods fell at the sharpest rate since 2016, and service providers are likewise reporting much-reduced pricing power. While this is good news for inflation, it’s bad news for business profits, hiring and investment.
The PMI data therefore suggest the policy debate will shift further away from inflation worries toward the need to support the struggling economy, hence adding to the chances of interest rates being cut in December.”
The possibility of a breakthrough in the Russia-Ukraine war have pushed the oil price down today.
Brent crude has fallen by 1.1% this morning to $62.70 per barrel, its third daily fall in a row, with US crude (WTI) down 1.44% at $58.15 per barrel.
Price fell even though the latest proposed peace deal does not look realistic.
Tony Sycamore, market analyst at IG, says:
WTI crude oil is trading lower as President Trump pressures Ukraine to accept a 28-point peace plan that would require Ukraine to cede Donbas and Crimea, cap its army, and abandon NATO aspirations.
With Ukraine yet to formally reject the deal, the slim odds of an agreement are weighing on prices, as it would remove much of the war’s geopolitical risk premium baked into crude. Rejection of the deal would likely see prices rebound toward $61.00.
We also have some encouraging economic data from Europe.
Business activity across the eurozone has continued to increase solidly this month, according to a ‘flash’ survey of purchasing managers across Europe.
Data provider S&P Global also found that eurozone companies are more upbeat on the outlook for the coming year, even though new order growth has softened this month.
The pick-up was driven by the services sector, where growth hit an 18-month high, while manufacturing shrank slightly.
Dr Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, said:
For months the manufacturing sector of the eurozone has been marooned in a no-man’s land of directionlessness. Production has picked up slightly since March of this year, but the overall situation has not improved during this period. Companies continue to face weak demand, which is reflected in a slight decline in new orders.
In this environment, companies have reduced their inventories of both intermediate goods and finished goods even more sharply than in the previous month, meaning that the inventory cycle continues to show no signs of turning upward.
We are still several months, and possibly even several quarters, away from sustained expansion in the manufacturing sector. In the manufacturing sector, Germany and France are moving in the same direction – unfortunately, it is the wrong one, with the index falling markedly in both.
European defence shares have fallen to their lowest levels since early September today, after Ukrainian president Volodymyr Zelenskiy said he will negotiate with Donald Trump on a US-backed peace plan to end the war with Russia.
An index of European aerospace and defence companies is down 2.55% today.
Germany’s RENK, which makes drivetrain and suspensions for military vehicles, has fallen by 5.35%, with arms maker Rheinmetall down 4.7%.
Uncertainty over when US central bankers might next cut interest rates is adding to the market turmoil.
Aaron Hill, chief market analyst at FP Markets, says investors have been flooded with a truckload of Fed speak in recent sessions, which has echoed a cautious/hawkish vibe.
Hill explains:
Governor Michael Barr urged caution regarding further rate cuts, as inflation remains above target, while Cleveland Fed President Beth Hammack warned that premature easing could prolong high inflation and elevate financial stability risks. Chicago’s Austan Goolsbee also expressed concerns about a December cut.
However, countering this view, Governor Stephen Miran stated that policy remains restrictive and should be eased to neutral.
There’s another sell-off in crypto assets today too.
Bitcoin is currently down 3.3% and earlier hit a low of $82,032, the weakest level since mid-April.
Ipek Ozkardeskaya, senior analyst at Swissquote, says:
The crash in cryptocurrencies may be forcing investors to liquidate other positions – likely their tech bets. Bitcoin is testing the $86k level at the time of writing, and to be fair, there’s nothing to stop the fall given that we have no idea what a coin is worth – other than the value we collectively give it.
XTB: Stocks on track for worst week since April
European markets are a sea of red, as the major bourses end the week poorly.
Germany’s DAX index has dropped by 1.3%, France’s CAC is 0.9% lower, and Spain’s IBEX has lost 1.3%.
Kathleen Brooks, research director at XTB, says:
The premise for stocks on Thursday was strong: Nvidia’s results were stunning, and the US unemployment rate rose, sparking hope that the FOMC may consider a rate cut next month.
However, there was a categorical reversal in sentiment, stocks plunged, intra-day volatility surged to its highest level since April, and Nvidia’s share price shed 3%.
Stocks are now on track to register their worst week since President Trump’s tariff plan ripped through markets back in April.
Asia-Pacific markets have fallen again today.
China’s CSI 300 has dropped by 2.4% today, while South Korea’s KOSPI index has shed 4.2%.
