Market Report: Minimal market reaction to Reeves’ speech
Steve Clayton, head of equity funds, Hargreaves Lansdown: “Chancellor Rachel Reeves set out the stage ahead of the Budget in her speech this morning. She surprised no-one by refusing to rule out tax rises and tried to get markets onside, promising to go faster and further to deliver growth. She pointed out that £1 in every £10 of taxpayers money is now spent on servicing the interest on the debts that successive governments have accrued. That sums up her dilemma, she wants growth to boost revenues and ease the debt constraints, but those constraints are very real and give her little room for manoeuvre. Markets know this, which is why there has been very little reaction to the speech, given it revealed little of substance. Equities were under pressure already this morning and the FTSE remains 70 points or 0.7% lower. Gilt yields have improved by about 2 basis points, in common with European bond yields, whilst sterling has barely budged.
When the bell rang to mark the end of regular trading hours last night everything was looking rosy. The S&P 500 index of America’s leading companies had edged higher on the day, whilst the tech-heavy NASDAQ composite had added almost half a percent. Investors had cheered a knock-out earnings report from Palantir, one of the market’s hottest AI plays. Palantir had risen by as much as 7% after reporting that revenues were up 63% in the third quarter, with private sector demand more than doubling. Palantir said their growth was driven by US demand, whilst Europe remained “stagnant”. CEO Alex Karp, referencing the group’s rapid expansion and the group’s lofty market valuation said: ‘We are in a nosebleed zone… no-one else is here.’
After the close however, investors began to question that valuation. Palantir trades at over 85x revenues, placing a value of almost $500 billion upon a group which is currently making around $1.2bn in sales each quarter. The stock had already come off its highs toward the end of regular hours, closing 3.5% higher, but after-hours trading saw that gain wiped out and by the end of the day the shares were looking at losses of around 3%, marking a retreat of almost $50bn in value from the earlier high point. Investors began to question the valuations of AI more broadly, reflected in falling futures markets.
Asian investors followed through and markets in the region have lost around 1% overnight, with Korea standing out for its 2.4% retreat after the market regulator issued an ‘investment caution’ notice on SK Hynix which has rallied 240% recently. With futures markets in the UK and Europe suggesting losses of as much as 1%, investors face an unpromising backdrop to today’s trading. So far this morning there are only a handful of stocks in the FTSE100 making any gains with the large majority registering losses, with weakness most pronounced in the mining sector. Oil markets are struggling too, with Brent crude futures dipping 60c to $64.3 whilst sterling is slightly weaker at $1.3113 this morning.
BP has issued a robust trading update this morning, with net income of $2.21bn easily ahead of the consensus expectation of $1.98bn, reports Bloomberg. The group hailed robust capital discipline and the successful start-up of seven major new production projects so far this year. The group have announced a dividend of USc8.32 per share, 4% up on last year and a further stock buy-back of $750m.
Associated British Foods has announced a review of the group structure alongside its full year figures. That review is likely to lead to a separation of its Primark retail business from the rest of the group’s food-related operations which span everything from Silver Spoon sugar to Sharwoods Asian specialties and the UK’s largest bakery group. The results showed Primark making progress, but the overall numbers were held back by a widely expected weakness in the Foods segment, especially in sugar.”