UK markets were little changed this week, with the FTSE 100 Index rising 0.09% to trade at 9,495 points at the time of writing.
Global stock markets are at risk of a sudden correction as the artificial intelligence boom pushes valuations towards dotcom bubble levels, both the IMF and Bank of England have warned. Kristalina Georgieva, the IMF’s managing director, said that bullish market sentiment about “the productivity-enhancing potential of AI could turn abruptly”, hitting the world economy.
The Bank of England body overseeing financial stability risks also drew parallels with the 2000 crash that followed the dotcom boom, warning of the risk of a “sudden correction” in global financial markets. However, Nvidia chief Jensen Huang has said that the current AI boom is “dramatically different” to the dotcom bubble because the “hyperscalers” are so much richer than the companies of the 2000 internet bubble era. US Federal Reserve officials have also played down the prospect of a damaging market correction.
Listings of UK homes for sale fell at the fastest pace in two years in September, while rental instructions plunged to a new post-pandemic low as uncertainty over November’s Budget hit sentiment. The Royal Institution of Chartered Surveyors said on Thursday that its measure of new vendor instructions fell to minus 15 last month, down from minus 4 in August and the lowest since August 2023.
The index, which measures the difference between the share of agents reporting rising and falling listings, marked a noteworthy departure from a string of 13 consecutive positive readings up to August. Similarly, the rental index tracking landlord instructions dropped to minus 38 last month, the lowest reading since records began in 2015, exempting the spring of 2020, when the housing market largely shut during the first weeks of the Covid lockdown.
The market has slowed significantly due to the impending Budget and all the uncertainty it brings in relation to possible future tax increases. Among the proposals reportedly under consideration are changes to inheritance tax, a new levy to replace stamp duty, and the extension of national insurance contributions to landlords’ rental income.
Elsewhere, the UK food industry has said domestic policies, not global pressures, are forcing grocery bills higher, as food inflation in Britain outstrips that of other wealthy economies. Living wage increases, new regulations and a backed-up planning system are among the factors driving up grocery bills, according to food producers.
UK food price inflation reached 5.1% in August, the highest since January last year and above rates in Germany, France and the US (1.8% – 3.1%). The Food and Drink Federation expects inflation to rise to 5.7% by December, citing costs from government policies such as higher employer National Insurance contributions and a new packaging tax. Overall, UK food prices are now 38% higher than in January 2021.
Commodity markets
In the commodity markets, Brent crude futures traded around $64 per barrel on Friday and are set to end the week unchanged, after Israel and the Palestinian militant group Hamas signed a ceasefire in Gaza. Isreal and Hamas signed an agreement on Thursday to cease fire and free Israeli hostages in exchange for Palestinian prisoners, in the first phase of US President Donald Trump’s end to the war in Gaza.
Under the agreement, firing will cease, Israel will partially withdraw from Gaza, and Hamas will free all remaining hostages it captured in the attack that precipitated the war, in exchange for hundreds of prisoners held by Israel. The peace agreement is a breakthrough in recent Middle Eastern history and its implications for oil markets could be wide ranging, from the possibility of a decrease in the Houthis’ attacks in the Red Sea to an increase in the likelihood of a nuclear deal with Iran.
Also supporting oil prices, the OPEC+ group agreed on Sunday to a November output hike that was smaller than market expectations, easing oversupply concerns. Meanwhile, a Republican bill to fund the US government and end a shutdown was falling short of the votes needed for passage in the Senate on Thursday, as voting continued. A prolonged shutdown could dampen the US economy and hurt oil demand.
Gold prices traded around $3,990 an ounce on Friday, after breaching the $4,000 milestone for the first time in the previous session, as the dollar pushed higher and gold investors booked profits following the ceasefire agreement between Israel and Hamas.
Equity markets
US equity futures rose on Friday after the main indices retreated from record highs in the prior session, as investors re-evaluated the artificial intelligence driven rally, interest rate cut prospects, and the prolonged government shutdown.
In Thursday’s regular trading session, the Dow Jones Industrial Average fell 0.52%, the S&P 500 lost 0.28%, whilst the Nasdaq Composite declined 0.08%. Minutes from the September Federal Open Market Committee meeting released on Wednesday showed that Federal Reserve officials were strongly inclined to lower interest rates, with the only dispute seeming to be over how many cuts were coming.
The meeting summary indicated near unanimity among participants that the central bank’s key overnight borrowing rate should be cut due to weakness in the labour market. They split, however, on whether there should be two or three total reductions this year, including the 0.25% move approved at the 16th-17th September meeting.
Participants expressed a range of views about the degree to which the current stance of monetary policy was restrictive and about the likely future path of policy. Most judged that it would like be appropriate to ease policy further over the remainer of this year but remained cautious about persistent inflation. Investors continue to price in a 0.25% cut later this month and another in December.
China has introduced sweeping export controls on rare earths and related technologies to strengthen its leverage over critical minerals ahead of an expected meeting between President Trump and Xi Jinping. Under the new rules, foreign companies must obtain Beijing’s approval to export magnets containing even trace amounts of Chinese-sourced rare earths or produced using its extraction, refining, or magnet-making technology. These minerals and magnets are essential components in everything from smartphones to electric vehicles and fighter jets.
The information provided in this communication is not advice or a personal recommendation, and you should not make any investment decisions on the basis of it. If you are unsure of whether an investment is right for you, please seek advice. If you choose to invest, your capital may be at risk and the value of an investment may fall as well as rise in value, so you could get back less than you originally invested.