Market report: Footsie rises as oil retreats, US-China talks in focus and JD Sports’ Mexican wave
Susannah Streeter, chief investment strategist, Wealth Club: “The pressure cooker of worry about inflation is giving off less steam as crude prices have fallen back amid growing hopes that fresh negotiations could lead to a breakthrough in the Iran conflict. The Footsie has clawed back ground in early trade, making up some of the losses suffered on Friday, but there’s still caution around given how hawkish central bankers appear to have turned about the potential need to dial up interest rates to keep a lid on threats of a fresh unruly price spiral.
Communications channels are already reported to be open between Tehran and Washington, and the United Nations General Assembly in New York has a chance of being the catalyst for talks. Trump has said he may consider meeting Iranian president Masoud Pezeshkian, while Qatar’s prime minister is appealing for a concerted effort among Gulf states to find a solution.
As we’ve seen repeatedly since the conflict broke out in March, prices are hyper-sensitive to prospects of negotiations, but given hopes have repeatedly been dashed, there will be scepticism about a decisive agreement being reached this week. Signs that oil is continuing to flow through the Strait of Hormuz, despite the hugely complex and still dangerous situation, have also been met with some relief, helping bring Brent crude down to around $101 a barrel. There are also hopes that Saudi’s damaged pipeline will be back in action sooner than feared, but given there still appears to be little breakthrough in containing the Houthis’ highly organised attacks, risks remain of fresh fracture in the region.
Investors will also be watching the outcome of planned talks between Trump and Xi Jinping on Thursday, with high interest in whether the trade rollercoaster could lurch into another volatile swing or continue with a calmer descent. There are hopes that the trade truce, which is due to expire on 10 November, will be extended, and that potentially lower tariffs could be brokered. China has some gems up its sleeve in terms of negotiations, particularly its trove of rare earth minerals, used across so many industries from cars and electronics to aerospace and defence.
In return for loosening export restrictions, it wants Washington to give Chinese companies greater access to advanced US chip technology. If there are signs of concrete agreements being reached, it could take some heat out of supply-chain fears and give a lift to Asian equities and technology stocks. But there are plenty of potential tripwires ahead, not least around Taiwan and US concerns about China’s growing might across multiple AI fields, so signs of significant progress may be limited.
JD Sports is vaulting into the Mexican market, hoping to start on a brisk run by opening more than 140 shops from 2027 through a new franchise partnership. The retailer is looking to kick off a Mexican wave of spending by tapping into a fast-growing athleisure market in the country, and Mexico’s young population gives it a large consumer base to target. Widening its geographical footprint should help it build sales volumes and create another engine of growth as conditions become tougher in some of its biggest markets. In the US, the sneaker has become a warning light on the dashboard of consumer spending, with shoppers increasingly thinking twice before splashing out on the latest must-have footwear. Like-for-like sales fell by 6.8% in North America, which accounts for 35% of JD’s sales, with weaker demand for the latest must-have footwear. Consumers may still be spending, but they are becoming more selective about discretionary purchases, particularly when household budgets are already under pressure. So JD Sports is widening its sales running track by pushing into Mexico, chasing new consumers, rather than waiting on shoppers in more mature markets to start splashing the cash again.
Britain has once again shown it can punch above its perceived weight and produce big tech players, but is still struggling to keep home-grown talent firmly within its shores. London has once again lost out to New York, with the AI infrastructure company Nscale set to list on the New York Stock Exchange, at a valuation of up to $35bn. It’s a young upstart, only incorporated in 2024, but has risen to giddy heights given the voracious demand for AI infrastructure, especially data centres. While still loss-making, it’s scooped big deals with tech giants like Microsoft, OpenAI and Nvidia, and the listing will enable it to rapidly expand its operations across Europe, North America and the Middle East, and expand its engineering and operations teams.
While not clinching the listing will be a blow, albeit expected for the London Stock Exchange, given its HQ is set to remain in London, its future success could still have beneficial repercussions for the UK economy. Keeping its headquarters, highly skilled jobs and a growing engineering and operations base in Britain means the UK can still capture some of the economic benefits of a company that is raising huge amounts of capital overseas. The expansion of AI infrastructure also has the potential to drive investment, jobs and demand across the wider UK technology and data centre ecosystem.
Companies in such a fiercely competitive and fast-moving space need the deep pools of capital which the US market offers in much more abundance, so there’s more than a hint of inevitability here. For UK retail investors, it presents an opportunity given the deal brokered by RetailBook will ensure a chunk of the offering is available to them, and not solely reserved for institutional players. This means that they won’t have to wait to jump on board after the shares start trading, as has happened too often in the past. Given the voracious appetite for SpaceX shares, there appears to be plenty of interest in getting on board a vehicle with lofty AI ambitions.
But as with any new listing, it’s important to look at the risks ahead, and make sure your portfolio is also well diversified in case times turn more turbulent. The prospects for Nscale are clearly being fuelled by the high demand for infrastructure needed to power the next generation of AI products and services, but with concerns about the need for greater regulation swirling, the advances might not progress at such breakneck speed as currently being anticipated.”