Market report: US Midterms, oil creeps higher and China moves to calm market jitters
Susannah Streeter, chief investment strategist, Wealth Club: ‘’The US mid-term elections kick off with a fresh wave of strikes on Iran, with Trump doubling down on his foreign policy despite deep apprehension across Middle America. London’s Footsie is set to start on the back foot, as geopolitical uncertainty reigns and the ongoing tech sell-off is causing nervousness about the repercussions for the wider global economy.
Though the strikes on Iran’s Qeshm Island appear limited, it’s still bullish action, and runs against the message of greater diplomacy which the administration had been pushing prior to the attacks.
Oil prices are on the rise again, with Brent crude heading back above $106 a barrel, up around 2%. However, the gains for now appear relatively limited, with hopes still swirling that negotiations will come to fruition, and that another big escalation in the conflict will be avoided. Trump’s approval rating has dropped lower as hostilities have dragged on, with gas prices remaining painfully high, exacerbating cost-of-living concerns. But it seems like the temptation to appear to have the upper hand in the conflict as America goes to the polls was too much of a temptation.
The big question is whether the blue wave will be a small tide or a tsunami. Even though polls point to a big win for Democrats, with hopes of taking the Senate high, Republican voting intentions have been underestimated before, so there’s still high caution around. Data centre concerns are still front and centre for voters across the political divide and it does seem as though some kind of slowdown in the rapid build-out is likely, which could continue to hit tech sentiment.
The mini rebound on Wall Street has fizzled out and investors remain highly wary about the high sums being poured into AI infrastructure without evidence that returns will compensate for the eye-watering expenditure. Apple has been more insulated from the sell-off, having held back from mammoth AI spending. Its results surprised on the upside, with iPhones continuing to sell like hot cakes and revenues beating expectations. But it wasn’t all good news, with weaker sales than expected in China and iPad demand lower than forecast. So shares were flat in after-hours trade, having dipped earlier, with investors demanding a very high bar which Apple hasn’t vaulted over.
The tech rout is still preoccupying minds across Asia, where there’s been a dramatic sell-off in some of the semiconductor sector’s biggest names. Chinese authorities are now moving to try and calm the jitters by suspending new IPOs and major share sales. The China Securities Regulatory Commission has reportedly issued informal guidance to banks to hold off on new listings and large share sales until markets recover.
It may prove counterproductive, with an artificial pause likely to add to worries about a sell-off which could become out of control. The move is a striking one, given China’s ambitions to develop its capital markets and encourage more companies to list domestically. While limiting the supply of new shares may provide some temporary support to prices, it risks sending a signal that authorities are increasingly concerned about the scale of the market rout.
The IPO and share sale pause comes alongside a fresh package of support measures from the People’s Bank of China and regulators. The intervention follows a particularly bruising month for Chinese equities, with the mainland CSI 300 falling 8.5% in October, its worst monthly performance in more than a decade.
China is clearly keen to prevent the tech turmoil turning into a much broader loss of confidence. But while the measures may help shore up sentiment in the short term, they don’t tackle the deeper concerns about the economic outlook or whether the huge sums being poured into AI will generate the returns investors are banking on. Trying to calm nerves by artificially restricting the supply of shares may buy some time, but its unlikely to persuade investors that the worst of the sell-off is over.’’