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London Quick Take – 11 Dec - Fed cut stokes rally, Oracle resurfaces AI bubble worry
Note: This is marketing material. This article is not investment advice, capital is at risk.
Alongside the disappointing revenues it reported a $15bn increase in planned spending on data centres this year, while net debt rose 25% from a year ago to $99.9bn. There is still a lot in the pipeline – performance obligations - contracted revenue not yet been recognised, soared 438% to $523 billion – the only question is how quickly it can ramp, deliver and monetise. This was up 15% over the quarter after Oracle did deals with Nvidia and Meta.
This was by no means a terrible report, but it reinforces doubts about AI spending and bubble concerns. Nvidia, AMD, CoreWeave etc all took a hit.
Elsewhere...stocks in Europe are kinda flat this morning, with tech shares on the Stoxx 600 dragging, while both sterling and the euro rallied to two-month highs against the broadly weaker dollar. Gold picked up a bit of bid to hit a week high after the FOMC but has given back a bit as it continues to track its narrow range.
TL/DR: Stocks ride high on Fed cut, Oracle spooks the horses.
Stocks rallied and the dollar fell after the Fed cut rates but weak cloud revenues from Oracle has pushed the AI bubble narrative to the fore once more, weighing on broader risk sentiment and hitting AI-related stocks hard.
Fed decision: The Fed cut rates for a third straight meeting, as expected, and didn’t sound as hawkish as some had feared. In its statement the FOMC noted that “downside risks to employment rose in recent months”. Three policymakers objected to the vote, reflecting an unusually divided committee. The message was not as hawkish as it might have been though chair Jay Powell did suggest the bar for future cuts next year was higher as the current range for the fed funds rate was by some standards within the range for being neutral, and would “wait and see how the economy evolves”.
Economic projections were better – GDP next year is seen expanding by 2.3%, up from September’s 1.8% projection, reflecting the fact that the impact of tariffs has been less than feared, AI capex spending and Trump’s deregulation agenda.
The median dot plot was unchanged, suggesting one more cut next year, but six of the 19 Fed officials indicated rates should not have been cut yesterday. Three of the 19 officials fed funds rates is now below their neutral-rate estimates, while seven see no cuts next year.
The statement added a couple of words to its forward guidance to “In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks.”
Speculation about future hikes was shrugged off. “I don’t think that a rate hike ... is anybody’s base case at this point,” said Powell.
So, not as hawkish as it could have been and despite only one cut next year pencilled in, a new Fed chair and cooling jobs market means markets think there is more to come. But for the meantime the Fed looks like it can nothing but wait for a while.
Markets also liked the Fed begin purchasing $40 billion in Treasury bills, starting Friday. This is some soft easing to improve liquidity.
The S&P 500 finished the day up 0.7% near a record high and the Dow Jones rallied over 1% as financials were especially strong as the yield curve steepened. Bond yields came in at the front end a bit but the 10yr remains above 4.1%. Small caps did very well and the Russell 2k closed at a record high – lower quality shares do well when the Fed is easing; most are unprofitable. Futures this morning are handing it back on the Oracle drag.
AI bubble: Oracle shares slid 12% in European trade as earnings beat expectations but revenues were disappointing – soft cloud growth indicating it could take longer than expected to generate the profits required to justify the AI capex. Guidance was also a miss as Q3 revenue growth was forecast between 16% and 18%, shy of analyst estimates of 19.4%.
Stocks rallied and the dollar fell after the Fed cut rates but weak cloud revenues from Oracle has pushed the AI bubble narrative to the fore once more, weighing on broader risk sentiment and hitting AI-related stocks hard.
Fed decision: The Fed cut rates for a third straight meeting, as expected, and didn’t sound as hawkish as some had feared. In its statement the FOMC noted that “downside risks to employment rose in recent months”. Three policymakers objected to the vote, reflecting an unusually divided committee. The message was not as hawkish as it might have been though chair Jay Powell did suggest the bar for future cuts next year was higher as the current range for the fed funds rate was by some standards within the range for being neutral, and would “wait and see how the economy evolves”.
Economic projections were better – GDP next year is seen expanding by 2.3%, up from September’s 1.8% projection, reflecting the fact that the impact of tariffs has been less than feared, AI capex spending and Trump’s deregulation agenda.
The median dot plot was unchanged, suggesting one more cut next year, but six of the 19 Fed officials indicated rates should not have been cut yesterday. Three of the 19 officials fed funds rates is now below their neutral-rate estimates, while seven see no cuts next year.
The statement added a couple of words to its forward guidance to “In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks.”
Speculation about future hikes was shrugged off. “I don’t think that a rate hike ... is anybody’s base case at this point,” said Powell.
So, not as hawkish as it could have been and despite only one cut next year pencilled in, a new Fed chair and cooling jobs market means markets think there is more to come. But for the meantime the Fed looks like it can nothing but wait for a while.
Markets also liked the Fed begin purchasing $40 billion in Treasury bills, starting Friday. This is some soft easing to improve liquidity.
The S&P 500 finished the day up 0.7% near a record high and the Dow Jones rallied over 1% as financials were especially strong as the yield curve steepened. Bond yields came in at the front end a bit but the 10yr remains above 4.1%. Small caps did very well and the Russell 2k closed at a record high – lower quality shares do well when the Fed is easing; most are unprofitable. Futures this morning are handing it back on the Oracle drag.
AI bubble: Oracle shares slid 12% in European trade as earnings beat expectations but revenues were disappointing – soft cloud growth indicating it could take longer than expected to generate the profits required to justify the AI capex. Guidance was also a miss as Q3 revenue growth was forecast between 16% and 18%, shy of analyst estimates of 19.4%.
Alongside the disappointing revenues it reported a $15bn increase in planned spending on data centres this year, while net debt rose 25% from a year ago to $99.9bn. There is still a lot in the pipeline – performance obligations - contracted revenue not yet been recognised, soared 438% to $523 billion – the only question is how quickly it can ramp, deliver and monetise. This was up 15% over the quarter after Oracle did deals with Nvidia and Meta.
This was by no means a terrible report, but it reinforces doubts about AI spending and bubble concerns. Nvidia, AMD, CoreWeave etc all took a hit.
Elsewhere...stocks in Europe are kinda flat this morning, with tech shares on the Stoxx 600 dragging, while both sterling and the euro rallied to two-month highs against the broadly weaker dollar. Gold picked up a bit of bid to hit a week high after the FOMC but has given back a bit as it continues to track its narrow range.
Read my look at some ideas for 2026 here.