Today's markets: FTSE starts brightly despite tech woes

Europe has started brightly this morning on a busy day for updates in London and ahead of major reports in the US as well. The FTSE 100 is up 0.2 per cent, with shares in Frankfurt following suit while Paris has eked out a 0.4 per cent rise. The US continued its tumble yesterday, with the S&P 500 and tech-heavy Nasdaq down 0.5 per cent, with Nvidia leading the way down as AI stocks continue to struggle after DeepSeek’s entry into the scene. 

It was a mixed session after Microsoft shares fell after its earnings update, group revenue for its fiscal second quarter rose 12 per cent from the previous year, beating analysts’ expectations. However, sales at the closely watched cloud division, the biggest driver of revenues, were a little light of expectations. Microsoft also said it would enable customers to deploy DeepSeek’s latest model, in spite of worries about it stealing IP from OpenAI, which is also backed by the company. 

Tesla was all over the shop on mixed earnings but something about AI raised interest. Read more on that here.

Meta rose after earnings beat analyst expectations and Mark Zuckerberg praised Donald Trump, again: “We now have a US administration that is proud of our leading companies. That prioritizes American technology winning. And that will defend our values and interests abroad.” Apparently, he’s looking to buy a house in Washington – watch out Elon. Find more US company reports here. 

At home, Shell rose slightly in early trading in London as it hiked the dividend by 4 per cent and committed to another $3.5bn in buybacks. Annual profits slumped, but Shell generated free cash flow of $40bn across the year. So the cash is flowing and Shell can hope to close the valuation gap with peers in the US, right? Well maybe, but the main way you do that is by better tapping their capital markets and the best to do that is to up sticks and move HQ and primary listing to New York. More on that here.

Fevertree is also on the up this morning following a tie-up with Miller Lite brewer Molson Coors. The company built its reputation in Britain on a resurgent market for premium gins but has been focused more recently on pushing its mixers in the US, where the demand is for darker spirits. Since then, Fevertree has become the top seller of tonic water and ginger beer in the country. More on that here.

Central banks vs inflation

The Federal Reserve kept rates on hold, leaving the fed funds rate in its current target range of 4.25 per cent to 4.50 per cent. Resisting calls from President Donald Trump to cut “immediately”. Fed chair Jerome Powell said policymakers “do not need to be in a hurry to adjust our policy stance”. Trump, needless to say, was not impressed: “If the Fed had spent less time on DEI, gender ideology, ‘green’ energy, and fake climate change, inflation would never have been a problem”, was his retort.

Inflation is still somewhat elevated, according to the Fed. It is currently at an annualised rate of 2.9 per cent, down from a peak of 9.1 per cent in June 2022, but still above the central bank’s 2 per cent target. But the statement and presser seemed to show a Fed leaning a little hawkish. 

Treasury yields pushed up, with the 10-year approaching 4.6 per cent, while the dollar index rose to 108.25 as the currency caught some bid before both came back down towards 4.5 per cent and under 108 respectively.

The European Central Bank today is a dead-cert to cut despite higher inflation. It’s gone dovish and it will cut for a fifth time in this cycle. The December projections implied a terminal rate below 2 per cent— 100 basis points of cuts from where it is now. Growth risks outweigh nagging concerns about inflation. 

It will stick with the same old data-dependent forward guidance...but risks to growth in the Euro area remain skewed heavily to the downside and the question is really about how many cuts they deliver this year. Policymakers are going to largely look beyond the recent uptick in inflation – headline CPI rose 2.4 per cent in December, the second straight monthly increase and the highest reading since July.

Trump, trade and tariffs hang like a spectre over the meeting, but it seems as though the ECB is not that concerned from the inflationary point of view. Banque de France Governor Villeroy said US tariffs might be inflationary for the US but have little effect on eurozone inflation. President Lagarde noted that she was not “overly concerned” about the US exporting inflation to Europe. So, tariffs are bad for growth but not such a worry for inflation...so more cuts to come whatever happens. 

By Neil Wilson, an analyst at TipRanks