Storm of disappointing developments keep investors cautious

Investors are searching for a sense of direction amid a cacophony of developments, as harsh geopolitical winds swirl and a fierce storm barrels towards Florida. Oil prices had been tracking higher again, as hopes for a ceasefire between Israel and Hezbollah faded, while Hurricane Milton threatens to disrupt energy supplies, with some pipelines and delivery terminals in Tampa already shut. However, weaker than expected demand in the US, with stockpiles rising more than expected, saw Brent Crude dip back below $77 dollars a barrel.

The FTSE 100 has gained back some ground, following yesterday’s losses, but caution has been in the air following another highly volatile session for indices in Asia. The wave of enthusiasm which greeted the kitchen sink stimulus from the People’s Bank of China is ebbing away, given the lack of detail for further fiscal stimulus. Banks in China might be ready to lend, with lower rates and deposit requirements on offer, but if the demand isn’t there, it’s still set to hold back an economic rebound. Investors had been hoping for more details on an expected fiscal stimulus, hoping tax breaks would reinvigorate consumers and companies to borrow, but the vague plan put on the table yesterday by authorities disappointed. The Nikkei has climbed higher again, helped by ongoing weakness in the yen, up against the stronger dollar, which has been bolstered by expectations that the next rate cut from the Fed will be smaller than September’s big reduction.

Warniness is set to infiltrate the start of trading on Wall Street, as tomorrow’s inflation number comes into focus. Minutes of the Federal Open Market Committee will be published later, giving more insight to thinking around the table about monetary easing. There have been hopes that a softer CPI reading is incoming, which may incentivise the Fed on its rate cutting path. This helped support a recovery in tech stocks in the last session, but with the jobs market more robust than expected and retail sales also having held up better than forecast, there is still a chance inflation might prove a bit more stubborn in shifting lower.

?UK government borrowing costs have retreated a little, but 10-year gilt yields are close to at three-month highs, and almost double the rate on German Bund equivalents. It’s partly due to interest rate expectations, with the European Central Bank looking set to go faster in its rate cuts than the Bank of England, to help revitalise Europe’s sagging economy. Bond vigilantes are also on alert ahead of the UK Budget in three weeks. There is intense focus trained on Chancellor Rachel Reeves’ potential plans to tinker with the government’s borrowing rules and unlock more money to invest in infrastructure. There is set to be a lot of soothing words emanating from the Treasury about a highly focused and responsible investment plans, targeted on boosting longer-term growth. But the direction of yields pile the pressure on the Chancellor ahead of the budget, as increasing borrowing costs have the potential to further constrain government spending plans.

Google is in the spotlight after the US government says it is considering whether to ask a judge to break up search engine giant. However, regulation has been hovering like a dark cloud over Google owner Alphabet for years, so shareholders have been pretty sanguine after this latest twist in its tussles with lawmakers. Shares dipped less than 1% in pre-market trading, with sentiment overall having warmed back up towards tech stocks, with interest rate cuts still eyed, which would buoy the value of potential earnings. It’s likely that this latest regulation rigmarole will result in a multi-year period of appeals and will end in a series of concessions rather than a full breakup. Even if Google’s power is diminished and it’s not able to be the default search engine on devices owned by big tech giants, it’s sheer might of reputation in the world of search is likely to propel users towards it, nonetheless. The power of Google over the second quarter indicates that its already harnessing AI technology to deliver improvements and get more fingers searching and more eyes on screen. Advertisers are also seeing benefits in terms of higher engagement.?It’s early days but given Alphabet’s super-deep pockets to pour into these new technologies, and its increasing dominance in the Cloud business, Google looks set to stay well positioned to take advantages of future developments. Nevertheless, rivals are still nipping at its heels, and competition is intensifying from the likes of Amazon, which already has a ready well of customers who use the site to search for products. It’s far from clear who will be the winners. as the AI juggernaut continues to rumble, and it could well be an upstart rival rather than a regulator which poses the greatest risk to Google’s search dominance.’’

There is no respite in sight for strike-wracked Boeing, with the company now withdrawing its offer to workers who’ve left production lines. Union members had rejected the 30% pay offer, over four years, and had been holding out for better conditions. But ongoing negotiations have failed, with Boeing now walking away and management drawing up longer-term contingency plans for industrial action. This includes asking staff to take one week of furlough every four weeks; to try to limit the amount of cash the company will be losing as production is scaled back. Boeing is playing hard ball here, to try to force union members to accept a deal. It’s a risk given that a protracted strike is likely to be a multi-billion dollar hit for the company, its suppliers and its customers. Deliveries are forecast to fall again, which is likely to provoke fresh ire from airlines, like Ryanair, which has already been forced to reduce capacity due to extended wait-time on new deliveries of the 737?Max. Boeing’s shares remain in beaten up territory as the strike swamps the company, and it continues to be mired in serious safety issues.’