The FTSE 100 rose on Thursday after the Federal Reserve cut interest rates overnight and announced liquidity-boosting treasury purchases.
However, the gains were less than convincing as concerns about AI valuation crept back in and curtailed risk appetite. The FTSE 100 was just 0.1% higher at the time of writing.
The Federal Reserve cut interest rates by 0.25% as expected overnight, in a 9-3 vote that suggests rates could remain at current levels for the foreseeable future.
US stocks surged following the Fed’s instalment, with the S&P 500 closing 0.6% higher at 6,886 – just points away from an all-time high.
The real driver of a bid in US stocks for a short period overnight was the Fed’s decision to start purchasing short-dated Treasury bills to help manage liquidity. News of treasury purchases comes just days after the Fed paused its balance sheet reduction, known as quantitative tightening.
The effect of both measures will help manage shorter-term interest rates and boost overall market liquidity, which many will see as a reason to buy stocks and other risk assets.
Unfortunately, any positivity from the Fed was quickly squashed by the reemergence of concerns about AI valuations, as Oracle shares dumped after earnings. S&P 500 futures were pointing to a lower open.
“AI bubble fears are never too far below the surface, as Oracle’s earnings last night proved,” said Chris Beauchamp, Chief Market Analyst at IG.
“Markets had been in a more optimistic mood following the Fed meeting, but once again it is the concern about expenditure among the big tech names that has investors worried. Oracle plans a massive debt surge, adding to the pressure to deliver in coming quarters. September’s euphoria feels like a distant memory for the shares.”
FTSE 100 stocks were split almost 50:50 between gainers and losers on Thursday, with developments in the US providing no catalysts for significant repositioning in either direction.
There was an element of bargain hunting on Thursday, with names such as Ashtead and ConvaTec attracting buyers after recent share price declines. ConvaTec was the top riser, up 2%.
Entain was the top faller after announcing its CFO would step down. Shares were down 3%.
BP and Shell were flat after a short-term spike in oil prices on the US seizing a Venezuelan oil tanker was quickly sold into with traders choosing to focus on the possible reintroduction of Russian oil to the global market.
“Oil prices slipped, with Brent now below $62 a barrel, as hopes for a Ukraine peace plan sparked talk of Russian energy returning to Europe, easing supply fears that flared earlier this week,” explained Matt Britzman, senior equity analyst, Hargreaves Lansdown.
“Traders had been rattled after the US intercepted a sanctioned tanker and Ukraine struck a vessel linked to Russia’s shadow fleet, but the mood shifted as OPEC+ output looks set to swamp tepid demand. With fresh reports from OPEC and the IEA due today, all eyes are on whether the market’s bearish tone deepens.”