- FTSE 100 opens up while concerns linger on Wall Street about AI.
- Nvidia is still mired in a confidence crisis.
- Meta rises, but Microsoft disappoints.
- Tesla investors look past disappointing delivery numbers.
- Ofcom proposals to change second class post will benefit new Royal Mail owners.
- Brent Crude hovers around $76 a barrel, at multi-week lows.
Susannah Streeter, head of money and markets, Hargreaves Lansdown:
‘London’s blue-chip index has found its feet, making a little progress in early trade, unnerved by a slide on Wall Street. Investors stateside still have a case of the jitters, with concerns about the impact of cheap Chinese AI technology on expensive US valuations causing ructions. The overall message of caution emanating from the Federal Reserve has also raised concerns that inflation could be on the march upwards again. The Fed, as expected, kept interest rates in a holding pattern, but dropped its recent mention of inflation making progress. With threats and speculation flying around about trade tariffs and the potential impact on consumer prices, its little wonder policymakers seem in no rush to cut rates again, especially given the resilience of the US economy.
Chip maker Nvidia is still mired in a rollercoaster of a confidence crisis. Shares fell back by 4%, erasing some of Tuesday’s recovery. Investors are fretting that the juggernaut is set to lose momentum, given the progress made by DeepSeek in using cheaper semi-conductors in its AI model. The roll out of value versions of large language models will make the technology more accessible, potentially leading to higher global demand for chips. Chinese e-commerce giant Alibaba is showing it’s firmly in the race, claiming its Qwen Gen AI model has topped DeepSeek, Open AI and Meta in performance tests.
Alibaba’s claims weren’t even a glancing blow for Meta. Facebook’s owner flexed its global muscle, to report revenue of $48.4 billion for the fourth quarter, up a whopping 49% compared to a year earlier. CEO Mark Zuckerberg said DeepSeek’s impact has reinforced his conviction that Meta’s focus on AI is justified, with a further scale up in spending planned for this year.
There’s more uncertainty among investors about the impact of Chinese upstarts for Microsoft. Investors are still sceptical about the huge sums being poured into AI infrastructure, if revenues don’t match up. Growth in Microsoft’s Cloud business, which benefits from AI applications, didn’t live up to expectations, and sentiment has turned negative. But megatrends like AI take time, rarely track in a perfect line, and bumps in the road are part of the journey.
Tesla’s results initially disappointed the market, with revenue coming in below expectations at $27.22 billion for the quarter. But they bounced back in after-hours trading. A weak quarter was expected, with sluggish deliveries despite aggressive incentives, but the market’s quick recovery suggests investors are looking past the miss, amid expectations for a new affordable model being launched onto the market. More from my colleague Matt Britzman below:
Ofcom’s proposals to scrap second class letter deliveries on Saturdays, and reduce the service to alternate weekdays, will be music to the ears of Royal Mail’s new owners, who are waiting in the wings, ready for the takeover. Changes were expected, but the announcement from OfCom has come more quickly than forecast. Czech billionaire Daniel Kretinsky received an early present before Christmas, after the government approved the deal for his company EP Group to buy Royal Mail’s parent company, IDS. There are legally binding commitments attached to this deal, including the promise to maintain the Universal Service Obligation for one price, whatever the distance. But with OfCom proposing to reduce second class letter obligations and lower delivery targets, it’ll give the new owners a head-start in turning around Royal Mail, without the threat of fines. Maintaining an infrastructure built for 20 billion letters when less than 7 billion are sent every year, has been a weight hanging around the company, and one which EP Group will be able to shed much more easily, under these proposals.
The lack of clarity about Trump’s position on tariffs is weighing on oil prices, with the benchmark Brent Crude trading around $76 a barrel, at multi-week lows. There’s still concern about the knock-on impact to global trade and the demand for energy. But if tariffs were imposed on crude imports from suppliers in Mexico and Canada, it could increase refinery costs and increase gas prices for Americans, potentially lowering demand. A larger than expected increase in US crude stockpiles is also weighing on prices, with the Energy Information Administration reporting a 3.4-million-barrel rise last week.
Matt Britzman, senior equity analyst, Hargreaves Lansdown:
‘’Tesla investors are fuelled by optimism around Full Self-Driving (FSD) and the upcoming affordable model – two key catalysts that could drive Tesla’s next leg of growth.
Self-driving remains central to justifying Tesla’s lofty valuation, with the long-term bet resting on software-driven profits and autonomy. Progress is ticking along, with growing FSD availability, improving real-world performance, and the first Cybercab production still on the 2026 roadmap. Meanwhile, the low-cost model is crucial for delivering growth in what’s shaping up to be a tough EV market next year, and investors will take comfort in Tesla sticking to a first-half 2025 timeline.’’
