Stocks in London were down early doors on Wednesday with the FTSE 100 falling about a third of a per cent. Defence stocks were among the big gainers after US President Donald Trump agreed that Nato countries should shoot down Russian aircraft that violate their airspace, and backed Ukraine to reclaim all its territory lost to Russia, with European Union funds, of course.
Babcock and BAE Systems both climbed more than 1 per cent, bucking a Europe-wide downturn for equity markets. Likewise, while the Dax fell half a per cent, Rheinmetall rallied almost 2 per cent. Leonardo was up similarly in Italy, and Saab rose 4 per cent. Nato seems ready to shoot down the next incursion – Turkey shot one down in 2015, and WW3 was averted. I would be surprised if Russia heeds the warning – expect a big pullback in stock markets, ex-defence, if a Russian jet is downed, but this should be treated as an opportunity. Utilities and defensive names are also firmer in London, while financials and anything cyclical lead the decliners this morning. I’m not convinced banks would do all that badly from war though…
UK growth is slowing: yesterday’s flash composite PMI fell to a four-month low. The good news is that price pressure is easing, and this should make the Bank of England readier to cut rates this year – markets are way too hawkish on the BoE right now, and Pimco is right to say the UK won’t be a big outlier on inflation, whatever the OECD is saying. Sterling should have further to fall.
Wall Street closed down on Tuesday, snapping a three-day win streak as Federal Reserve chair Jerome Powell warned stock markets were “fairly highly valued”. There is also some chatter about a possible government shutdown on 30 September. Tech led the declines with the Nasdaq composite down almost 1 per cent, while the S&P 500 closed half a per cent lower, with Nvidia shares falling 2.8 per cent a day after it announced a $100 billion investment in OpenAI. Amazon fell 3 per cent and Tesla was down 2 per cent. Oracle was down more than 4 per cent. On Nvidia, there is obviously a bit of a concern about how sustainable a deal is where you invest $100bn and the company immediately uses that money to buy your products. Where is the market?
Gold traded firmer but was a little off yesterday’s record highs. China is said to be pushing central banks to buy and store gold in the country via the Shanghai Gold Exchange.
Mining stocks in the US: The US seeks an equity stake in Lithium Americas while renegotiating a $2.3bn Department of Energy loan, with the stake worth up to 10 per cent, according to Reuters. Shares were up 78 per cent in post-market. Quantum stocks also show no signs of slowing down; Rigetti up 11 per cent and D-Wave up 7 per cent to extend a sharp two-week rally. That’s after IonQ, another stock in the space, reported a “significant quantum internet milestone”.
By Neil Wilson, investor strategist at Saxo UK