Inflation concerns return with US October CPI rising 0.4% month-on-month, while Brent crude has edged higher again amid continued tensions in the Middle East, complicating the outlook for interest rates. Pre-christmas cheer for Fuller, Smith & Turner with the pub chain delivering a strong set of results, with profits jumping 25% and festive bookings running well ahead of last year.
Susannah Streeter, Chief Investment Strategist, Wealth Club: ’The volatility wracking the tech sector continues, with futures indicating another rebound could be on the cards on Wall Street, after stocks lost steam amid the Nvidia fallout and a hotter-than-expected inflation reading. The Footsie has opened on the front foot in early trade after a strong start by mining stocks following a rebound in silver prices in particular. Oil giants are also higher as Brent Crude ticks up again amid uncertainty around Middle East peace talks. Sentiment has had a lift globally with indices in Japan and South Korea turning positive as attention turns back to tech prospects.
An upbeat earnings report from neocloud provider CoreWeave, which had faced intense selling pressure, has sparked an uptick in enthusiasm for AI-focused stocks. Results exceeded expectations and the company raised its full-year outlook. Nevertheless, its debt levels and high servicing costs still remain a concern, and it has begun another complex financing arrangement with an investment-grade customer, allowing that customer to own infrastructure directly and helping CoreWeave fund its enormous expansion. The intricate nature of these deals, which is seeing funding channelled in a circular fashion to support big players in the market, is set to continue to cause unease, especially at a time when Democrats are calling for far more transparency in the AI trade.
There's no let-up in the spy controversy devouring Nvidia, with its shares sliding sharply again as pressure intensifies from all sides. As well as an internal investigation overseen by independent directors and outside counsel, the FBI is also reportedly investigating the affair, according to President Trump. Huang has acknowledged being unfaithful to his wife, but the much bigger concern is whether he was the target of a Chinese intelligence operation. He's also now facing a proposed class action lawsuit from shareholders incensed by the dramatic fall in the company's valuation since the scandal broke. Then there's the scrutiny the company will be put under in Congress, with three committee chairmen requesting a closed-door briefing to investigate whether it had adequate controls over the export of its advanced AI chips to China, and alleged efforts to circumvent US restrictions. At the centre of all this is the role of Megaspeed, the Singapore-based data-centre company where Alice Huang was an executive, and allegations that it helped China obtain restricted Nvidia chips. There is a risk that the political fallout could translate into tighter restrictions on chip sales to China, just as Nvidia is trying to defend its position in a fiercely competitive global AI market. It's little wonder the shares are coming under so much pressure.
Jensen Huang's superstar position at the centre of the AI world, courted by world leaders and lauded as a visionary, has been dealt a severe blow given the risks he has courted. But with no clear succession plan in place, the board for now appears to be standing by their man, given how intrinsically his personality seems woven into Nvidia's valuation. It will depend on what further revelations come out of investigations and, as they progress, the share price is set to stay under pressure.
Brent crude is tracking higher again, which risks setting off fresh concerns about inflationary pressures. The CPI snapshot came in hotter than expected, rising 0.4% month on month, against forecasts of 0.3%, pushing US Treasury yields sharply higher again. The insidious effects of the conflict in the Middle East are being felt, as higher energy prices filter through, and given there is, as yet, no firm peace proposal on the table, risks of an ongoing war remain. In this environment, it's not surprising that bets are mounting for a rate hike from the Federal Reserve in December, with markets now pricing in a strong chance of an increase. Wall Street looks set to shake off some of these worries today, but concerns about higher borrowing costs at a time when big tech players are taking on so much debt are set to linger.
And there's a round of pre-Christmas cheer for pub chain Fuller, Smith & Turner, despite the headwinds facing the pub industry. Pre-tax profits jumped 25% to £28.2 million in the first half, with revenue climbing 6.5%. Its recipe for success appears to be a combination of premium offerings, a relatively affluent customer base and a focus on making its existing pubs work harder. Its core customers are better placed to swallow higher prices, giving the group more room to pass on rising costs without putting people off coming through the doors. It's been serving up more than just pints, with accommodation sales up almost 9%, while food and drink have also enjoyed healthy growth. Better margins have helped profits rise much faster than sales, despite the pressure of higher wage bills and other costs.
The summer sunshine and sporting events provided an extra boost, but the momentum hasn't faded with the warmer weather. Sales have continued to be brisk into November, with Christmas bookings running 16% ahead of last year. Fuller's is delivering an early Christmas present by, upgrading its full-year profit expectations as it heads into what is traditionally its busiest trading period. That's an encouraging sign for the hospitality sector, although its more affluent clientele means it may be better insulated from the squeeze on household budgets than many rivals.''
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