Derren Nathan, head of equity research, Hargreaves Lansdown:“The FTSE 100 shrugged off this weekend’s political turmoil in Whitehall to open up near record highs, as it holds on to the coat tails of a strong Monday for Asian stocks. With precious metals gaining ground again expect a good start for the miners. After last week’s see-saw, silver is up nearly 5% and gold has crept back over the $5,000/oz level as investors prepare for US inflation and jobs data later in the week.
Japan’s electorate braved blizzard conditions to give Prime Minister Sanae Takaichi’s Liberal Democratic Party more than a two-thirds majority in the Land of the Rising Sun’s powerful lower chamber. Her spend big and tax low approach has gone down well with stock markets, with the Nikkei crossing the 57,000 barrier for the first time before pulling back a little. That puts pressure on productivity and economic growth to do the heavy lifting when it comes to balancing the books. Japanese inflation is nearly at the Bank of Japan’s target level of 2% but there are concerns that too much stimulus could see price increases accelerate again. The interplay between Governor Kazuo Ueda, and the newly emboldened premier will be the key dynamic to monitor, but markets look to be anticipating some pressure on state finances, with both the Yen and prices of government securities under pressure after the result.
US stock futures are little moved today after US stocks ended the week just about flat, but it was far from an even outcome, with concerns about ballooning capex on AI, and threats to traditional operating models dragging on tech stocks.
The software sell-off wasn’t isolated either, with UK software & analytics companies also suffering. A shake out isn’t always a bad thing, and for investors prepared to see through the noise, quality names such as the London Stock Exchange Group and RELX (Hargreaves Lansdown stocks to watch for 2025 and 2026 respectively) there’s the potential to gain exposure to some quality names at relatively low multiples.
When disruptive technologies develop at pace, there’s always some fallout, but those that grasp the nettle and deploy game changing technology at scale can go on to create huge wealth. Ford’s invention of the assembly line in 1908, and decision to double factory worker wages was seen as reckless by some at the time, but it went on to dominate the US Motor Industry for another 20 years. Those companies ploughing 12 figure sums into AI infrastructure will be hoping for a similar success story. But unimaginable step changes in productivity and the arrival of science-fiction like technological capabilities could herald inflection points for other industries too. Tourism, retail, defence and the energy industries, to name but a few, were transformed by the mass adoption of the motor car and industrial manufacturing. AI could well be heralding a similar, if not bigger, paradigm shift.
But the long-term is a series of short-terms, and markets will be keeping a close eye on US CPI inflation due at the end of the week. January’s annualised price increases are expected to fall from 2.7% to 2.5% but that’s been aided by falling oil prices. Core inflation is expected to remain steady at 2.6% and unless that starts to nudge down, we may not see another rate cut during the final months of Jerome Powell’s reign at the Fed, even if the labour market tightens further. Unemployment figures are also due this week and are forecast to remain steady at 4.4%.
Brent crude prices are down around 1% to about $67.2 per barrel, extending weekend losses seen after Saudi Arabia dropped its selling prices on oil exports to Asia for the fourth month in a row. That’s shifted traders’ attention away from tensions between Tehran and Washington, back to concerns about an oversupplied oil market, despite fresh sanctions on Iranian tankers following talks on Iran’s nuclear future in Oman on Friday.”
|
