London Quick Take - 5 Things to Know in Markets Today - 9 Oct

1. Risk-on returns as yields fall and Middle East fears ease

UK and European stocks are trading higher on Friday, papering over a couple of days of hefty losses as bond yields fell after another healthy Treasury auction, while oil prices eased after President Trump ruled out imminent military strikes on Iran, saying Washington was having “productive discussions” with Tehran. Trump says no strikes until after the midterms.

The comments have allayed fears of a fresh flare-up in the Middle East after reports the US was set to resume military action. Fresh strikes would disrupt the flows that have been painstakingly re-established over recent weeks to pre-war levels, and represent a clear material upside risk to crude prices and term structure. Brent scaled almost $106 before the comments from Trump took it down a couple of bucks to $104 this morning.

2. Bond markets calm down, giving stocks room to rally

Bond yields have backed off a fair bit and are showing a bit less stress after the US Treasury saw strong demand for $22bn of 30yr T-bonds, which followed a healthy 10yr auction the day before. The US 10yr note yield is back to 5.24%, below the 5.25% stress level I'd flagged a few weeks back.

French 10yr OAT yields have backed off to 4.8%, down about 8bps this morning as investors are sniffing some decent yields at these levels and assume that selloff was overdone as this is not a sovereign crisis. Combined with the modest pullback in oil, that’s provided a good excuse for investors to pile back into stocks, particularly some of the more beaten-up sectors in Europe like the banks, where SocGen has slipped 26% below its August peak and Deutsche is 18% lower.

The CAC 40 is +1% to 7,800, while the DAX is also +1% to 25,056. The FTSE 100 rallied about +0.8% to 10,524 with broad-based gains led by tech and miners, with copper +1.5%.

3. OpenAI revenue miss rattles AI, boosts the software trade

A bunch of AI-related stocks tumbled on Thursday after disappointing revenue figures from OpenAI. The company told investors it had hit its $50bn annualised revenue target at the end of September, but this was below the $68bn figure that had been widely reported last month.

The missing $18bn did for chip stocks and AI favourites even as the Dow Jones managed a modest rally. Nvidia fell 3%, Oracle was down 6% and CoreWeave sank nearly 8%. Micron, Broadcom, Marvell, Amazon and Microsoft all declined, taking the Nasdaq down 1.25% for the day. That fed through to Asia, dragging the Kospi lower by 2.6% overnight, while Taiwan was down 1% with TSMC lower.

Meanwhile Firmus, the Nvidia-backed data centre operator, has pulled its IPO due to market volatility, while SoftBank is tapping Gulf investors for $100bn to expand its AI bet.

There was one beneficiary: software. The OpenAI “miss” provides a little relief on the software side. Relx, Sage and WPP are top of the FTSE 100 this morning, while Computacenter, Experian and LSE are around 2% higher. My “AI fear trade” screen lit up green with solid gains for the likes of Gartner, Adobe and Snowflake.

4. Elon takes aim at telecoms

Telecoms stocks are lower after SpaceX took a giant leap towards launching a Starlink mobile service. The company said it has bought a nationwide low-band spectrum licence that will allow it to become a major mobile carrier in the US.

It's a bigger threat initially to US carriers. AT&T shares are down nearly 8% in pre-market trading, while Verizon and T-Mobile are also around 7% lower. But it's also clearly a concern for incumbents globally, including the UK.

Vodafone slipped 4%, Airtel was down 3.8% and BT fell 2.5%. Oil majors BP, Shell and Ithaca also lagged as crude prices eased.

5. Inflation data, SSP warning and a major London listing

Today’s slate is quite light but attention turns to the University of Michigan inflation expectations data and consumer sentiment survey. The NY Fed’s survey this week showed the one-year inflation outlook had jumped to 3.9%, the highest since May 2023. The UoM’s last survey was even punchier, showing year-ahead inflation expectations up from 4.0% to 4.6%. Next week’s key event is the September CPI report on Wednesday.

Elsewhere, SSP shares slid nearly 4% after a profit warning. The caterer said tough trading conditions in North America had hurt the outlook and guided operating profit down to £230mn, slightly below expectations. Subdued passenger numbers over the summer are to blame, though Gulf traveller numbers have recovered to about 90% of pre-war levels.

Finally, shares of Airtel Money have begun conditional trading on the London Stock Exchange under the ticker AMC. Shares were priced at £1.96, valuing the company at £5.3bn. Unconditional trading is expected to start on 14 October. The float is the largest London listing in five years and a welcome sign of life in the market.