The has for the moment overtaken the AI trade at the centre of investor attention, with its most recent spike reigniting inflationary concerns which have weighed on sentiment this year.
While the may be shielded from much of the AI-related volatility and even, to some extent, the state of flux within the political situation domestically, the inflationary implications of the oil price spike are hard to ignore. As such, the primary index has failed to break free from the shackles of this potential growth headwind, despite the index being littered with mining stocks and of course the oil majors which have seen bouts of buying interest allied to the underlying commodity prices. Once more this exposure limited losses in opening exchanges, with a strong gold price providing additional support, such that the FTSE 100 remains 5.8% stronger so far this year, albeit some way from the recent record high.
A valuation adjustment following the latest tranche of a share buyback programme lifted Babcock International to the top of the leaderboard with a spike of over 6%, although the stock remains down by 14% so far this year. Nonetheless the drop does little to dent a gain of 122% over the last two years, and an ongoing set of global geopolitical tensions could well underpin the sector for some time to come.
Meanwhile, the fragility of sentiment has lifted yields and reinforced the strength of the , with mixed reports coming out of the region as mediation is sought by interested third parties. There seemed to have been some relief yesterday as it emerged that Qatar had suggested a 10-day ceasefire and the removal of restrictions in the Strait of Hormuz. However, the situation remains fast-moving and fluid, and it was subsequently reported that the US had completed a tenth consecutive day of strikes overnight and that early this morning Iran had attacked another tanker in the crucial waterway.
In a separate development, Yemen’s Iranian-backed Houthis introduced a naval blockade against Saudi Arabia, which could further crimp oil supplies. The oil price is currently standing at around $88 per barrel, approaching halfway between the pre-conflict level of $72 and the March peak of approximately $120. Quite apart from the inflation concerns, the US President will be increasingly mindful that the mid-term elections are approaching in November, let alone the current driving season which is approaching full swing, and that a war which the majority of the population seem to oppose could prove to be a political own goal.
In the meantime, investors were also sidetracked by the latest developments surrounding the chipmakers, which have seen some noticeable losses of late. There was another relief rally yesterday, with the likes of Micron Technology (NASDAQ:) advancing by around 2% and the VanEck Semiconductor ETF (NASDAQ:) marginally higher, while for the broader tech trade the finished all but flat following its decline last week. The sector will remain one of key focus over the next few weeks as earnings begin to be reported, with investors delving into the numbers for any signs as to whether the current level of valuations are justified and equally for the prospects for profit growth and a yield on the sizeable investments made to date.
In the meantime, the main indices remain healthily ahead in the year so far even though they are approaching an imminent and fresh round of pressure, with gains of 7.9% for the , 8.7% for the and 9.7% for the Nasdaq.
Across Asian markets, South Korea’s has become the index to watch given its particular exposure to the AI trade. The Kospi followed some of the US semiconductor recovery higher, lifting the index by almost 5% and arresting a recent decline which has resulted in a drop of 26% over the last month, although remaining 57% higher in the year to date. The gain was inevitably led by spikes in Samsung Electronics and SK Hynix shares, which added more than 7% and 6% respectively after some weakness of late prompted by a bout of selling to lock in profits.