Earnings updates are impacting the FTSE this morning, with an update from WPP sending shares down by double digits and pushing the blue-chip index into the red. The FTSE 100 is down 0.5 per cent in early trading, as miners also unwind a little from yesterday’s storming day. Elsewhere in Europe, shares in Frankfurt and Paris are also in the red ahead of the European Central Bank meeting, with some additional, but now regular, political chaos hitting the Cac.
Futures show that the S&P 500 will open flat later today, which would be a repeat of yesterday. The Federal Reserve cut rates last night as expected, but chair Jerome Powell poured cold water on the idea of another rate cut in December, which disappointed traders.
However, a lot is going on to impact US companies right now, after US President Donald Trump met with Chinese Premier Xi Jinping to discuss trade, which seems to have gone well. Trump briefed journalists on Air Force One, praising his Chinese counterpart and saying an agreement was close. Earlier in the day, he also said Nvidia’s Blackwell chip exports would frame part of his conversation with Xi, which pushed up the shares and sent the chip designer to a $5tn+ valuation. While the S&P was flat, the Nasdaq and the Magnificent Seven stocks ended the day in the green.
Microsoft, Google owner Alphabet and Meta all posted earnings updates after the market closed last night. It was a slightly mixed bag, with Alphabet impressing, Meta in line with expectations, but Microsoft cutting future growth expectations because it can’t meet demand. Microsoft’s shares dipped in after-hours trading, despite it delivering a pretty positive note overall.
But the big story is about Nvidia. Helped by the aforementioned Trump comment, Nvidia becomes the first company in history to be worth more than $5tn. It now has a higher market cap than five of the G7 countries’ entire stock market (the US and Japan are the exceptions), according to Deutsche Bank analyst Jim Reid. Nvidia’s shares are up fivefold since June 2023, when it first hit the $1tn mark. It only reached $4tn in July this year – an incredible rise.
The Fed cut had been fully priced in by markets, but there have been some minor aftershocks. Traders had been betting on a cut in the December meeting, but following on from Powell’s comments, this has fallen to 69 per cent. The committee is split. One member wanted to hold; another wanted a 50 basis point cut. The problem here is that you can no longer trust the board to look at the economic fundamentals. Powell is out of a job soon, and they’re lining up to replace him. They know how best to get the attention of the decision-maker: cut rates.
Some of the board members are certainly worried about a slowing labour market, but the data we have seen is very mixed. The US economy is not a simple beast, and no one is really 100 per cent sure on its direction, but to cut rates, especially when you see growth and inflation rising, seems insane. Perhaps they’re being smart and getting ahead, unlike European central banks, and certainly Andrew Bailey and co, who tend to act six months too late. But you worry about their motivations, and the impact in the long run. At least Powell acknowledged inflation expectations when ruling out a December cut. But you’d imagine that the pressure from the White House will increase on the rest. Two-year and 10-year Treasury yields rose slightly after the announcement. An unusual reaction to a rate cut.
By Taha Lokhandwala