Market snapshot: plenty to unsettle investors

US markets finished down but off their lows overnight, as the moral and physical debate over AI intensified after weekend comments from two of the largest proponents of the technology.

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Anthropic and OpenAI were exempt from the AI sell off since neither company are quoted – indeed, the OpenAI CEO ruled out the possibility of an IPO this year as it would be “ill-advised” – but those in the listed frame came under pressure as investors took flight on a mixture of fear and spending concerns.

Index heavyweight NVIDIA Corp (NASDAQ:NVDA) was a major drag on the relevant indices as it dipped by 3%, while Broadcom Inc (NASDAQ:AVGO) and Advanced Micro Devices Inc (NASDAQ:AMD) shed 4%, Intel Corp (NASDAQ:INTC) more than 5% and Hewlett Packard Enterprise Co (NYSE:HPE) around 11%, with a slowdown in capex spend heightening concerns, since it would reflect in revenue generation.

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However, it is already being debated as to whether this spend could then simply switch to cyber security, reliability and more general safety requirements. At the same time, it could allow those companies who have been at the epicentre of the spending, most notably the hyperscalers, to be able to monetise some of their investments, the relative lack of which has been the source of some impatience among investors.

In any event, the world has not changed overnight. There remains a clear recognition that demand continues to outstrip supply by a considerable margin, and equally importantly the reaction of any US slowdown in AI development would not necessarily be mirrored by other global powers, most obviously the likes of China. In the meantime, the nervousness is palpable and Dow Jones futures are currently pointing to a slightly weaker opening again later today.

Further disquiet across the Middle East region sent the oil price on another upward leg, with the current level edging towards $108 per barrel. Even though the Federal Reserve can do nothing to stem such rises, more general inflationary domestic concerns and heightened Treasury yields – the 10-year hit 5% which has not been seen since 2007 – the central bank may now have been boxed into a corner. The overwhelming consensus is that a 0.25% rise will come this week, with the distinct possibility of two more hikes to follow over the coming months.

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Any market weakness continues to nibble at the progress of the main indices of course, but they nonetheless remain in good shape for the time being. The Dow Jones is ahead by 9.1% in the year so far, and gains of 11.3% for the S&P500 and 12.7% for the Nasdaq reflect a year which has seen two consecutive quarters of simply outstanding earnings growth.

After finishing as something of a global outlier in ending the session higher yesterday, the FTSE100 succumbed to some early weakness and erased those gains. There was little buying interest to support prices, while there was a broad markdown across the financials with the possibility of monetary tightening ahead and more challenging economic conditions generally which could feed through to customer loan defaults. The primary index nonetheless remains ahead by 7.1% in the year to date, although edging further from the record high set in February, now some 2.5% away.

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Elsewhere, the UK unemployment rate remained stable at 4.9% in the three months to July and marginally better than the 5% which had been expected. As with the Fed, the last piece of the jigsaw for the UK central bank before its rate decision will be the release of the consumer price index report tomorrow, where inflation is expected to have accelerated to 3.1% in August from 2.9% in July.

Unlike the Fed however, where a hike is priced in as a done deal this week, the consensus remains that the Bank of England will stand pat at this meeting although a rise remains on the table before the year is out given relentless inflationary concerns emanating from energy prices in particular.