- Calm descends after AI turmoil with Fed decision on interest rates in focus.
- UK Chancellor Rachel Reeves set to announce plans to cut through planning red tape to boost growth.
- Ozempic gains the edge against competitors with FDA approval for reducing risk of worsening kidney disease and cardiovascular fatality.
- Luxury giant LVMH reveals resilient organic growth of 1% in fourth quarter.
- Market turmoil is set to ease further helped by better-than-expected results for Dutch semiconductor equipment maker ASML.
- Meta, Microsoft and Tesla shares rise ahead of key earnings reports.
- UK fashion chain Quiz on verge of administration.
Susannah Streeter, head of money and markets, Hargreaves Lansdown:
‘’Calm has descended on financial markets after the AI upheaval, which triggered a wave of selling, with investors seeing sharp falls as a buying opportunity. Focus is switching to today’s key Fed meeting and the direction of interest rates in the US. Rates being kept on hold is seen as a slam dunk prospect but there will be keen interest in chairman Jerome Powell’s words about the future path ahead, particularly given recent jitters about the prospects of a rate hike this year, which still right now looks unlikely.
The FTSE 100 is not set for much movement in early trade, with its tech-light make-up making it more immune to the current volatility and thanks to its defensive characteristics, it’s still hanging near recent highs. The pound has strengthened slightly against the dollar, to above $.1.24 which may weigh a little on multinationals with overseas earnings. Brent Crude is trading lower, around $77 a barrel, as Trump’s tariff threats are still causing jitters about the prospects for global growth. The direction of domestically focused stocks may hinge on sentiment surrounding Chancellor Rachel Reeves’ speech later. She’s determined to show she’s going for growth in a big way and is planning to light a bonfire of red tape when it comes to planning regulation. Decisions on airport expansion, particularly a third runway at Heathrow, will be closely watched and could lift airline stocks, give the extra capacity it could provide.
Ozempic looks set to polish its crown as the dominant force in the weight loss market, with new credentials added to its list of health benefits. It’s the only GLP-1 RA to be approved by the FDA in the United States for reducing the risk of worsening kidney disease and cardiovascular death in adults with type 2 diabetes and chronic kidney disease. This approval was based on the results of Novo Nordisk’s FLOW phase 3b kidney outcomes trial so it’s a big win for the company and positions them at the head of the pack. For adults living with type 2 diabetes and cardiovascular problems or chronic kidney disease, Ozempic has the potential to offer huge relief and cut healthcare costs, potentially reducing the need for multiple drugs.
The turnaround for Europe’s luxury superstars is on track with LVMH posting better than expected full year sales. Seen as the sturdy liner in what’s been turbulent seas for the industry, it put in a resilient performance in the fourth quarter. Sales rose by more than expected after dipping during the previous three months. Sentiment among wealthier shoppers has recovered in Europe the US and Japan but in China, which has been the powerhouse for the luxury sector it’s still been weaker. Nevertheless, this is signs of steady progress, with the luxury ship chugging forward, which will lift sentiment across the sector.
Beleaguered chip stocks have staged a semi-recovery after a shaky start, with Nvidia gaining almost 9% by the close, but it remains somewhat battered by concerns ricocheting about the prospects for earnings ahead, given the shock progress made by the Chinese AI upstart DeepSeek. But the rash of selling on Monday looks overdone. The current enablers of the AI revolution are still exceeding forecasts due to feverish demand with ASML knocking it out of the park when it comes to order demand. ASML design and manufacture the lithography machines that are an essential component in chip manufacturing, and although low-cost AI model unveiled by DeepSeek offers the potential for the reuse of cheaper chips, if there’s more widespread use of AI, it means a larger addressable market ahead. More on ASML’s results from my colleague Derren Nathan below.
Focus will now switch to the crucial earnings reports from big tech players Meta, Microsoft and Tesla later, which are likely to be big drivers of sentiment. They have gained ground despite the turbulence on markets, as investors assess they might not have to pour such huge sums into their AI infrastructure plans, if developments costs shift significantly lower. As the focus switches from the facilitators to the users of AI, these giants may be the ones to watch. But in the short-term investors will still be keen to see that benefits are coming thick and fast to account for splashing so much cash on their artificial intelligence dreams.
Back in the UK, the future of the UK fashion retailer Quiz is still clouded in uncertainty amid expectations it is close to falling into administration. The process would enable owners to reduce headcount and store footprint in a restructured company. Quiz delisted from the AIM market last week, as it looked to slash costs right across the business and it seems clear that its current network of 60 stores and multiple concessions will be drastically reduced. Although clothing sales overall rebounded in December according to the latest nationwide snapshot from the ONS, it’s been a super-tough period for the sector which has had to deal with months of sales declines. Quiz, like Boohoo and ASOS, is facing a fierce and powerful rival in the huge fast fashion behemoth Shein. Trying to flog dresses, tops, jumpsuits and accessories is a difficult business when an online only giant can compete so heavily on price. Maintaining a network of stores, and shop staff at the same time, while eyeing an increase in labour costs, is likely to have been a challenge too far for the Glasgow based firm.’’
Derren Nathan, head of equity research, Hargreaves Lansdown:
“ASML’s fourth quarter results should provide an island of calm amidst a sea of panic for investors in the semiconductor industry. There were beats on the topline and orders. Earnings per share of 6.85c (an uplift of 30%) also nudged ahead of analyst forecasts of 6.77c. Given the downwards revision in the 2025 outlook at the third quarter, a further cut was never really on the cards, and the strong order inflow in the final part of 2024 provides some hope that 2025’s guidance can be beaten. At the top end that’s 24% growth over the year just reported. The mid-point of gross margin guidance while only 1.2 percentage point greater than the 51.3% earnt in 2024, means there’s some scope for the bottom line to grow even faster.
But given the emergence of DeepSeek, investors minds will be on the longer-term outlook for advanced semiconductor manufacturing equipment. The demand for ASML’s machines should benefit from the growing appetite from computing power. But how much of that is derived from the cutting edge “High NA” machines remains to be seen. The good thing for ASML is that it has a dominant position in both very advanced and super advanced technologies. Export controls are one thing high on people’s minds, but for now the impact feels well baked into guidance, with any weakness in China likely to be offset by strength in the US, Taiwan and beyond.”