UK energy cap news, and easing fears about AI help to boost the market mood

There is a better tone to risk sentiment on Wednesday, as fears about AI ease, and news that UK household energy bills will fall by 7% boost the market mood ahead of the European open. The dollar is weaker across the board and commodities are broadly higher, as they react to President Trump’s bullish State of the Union Address.  

Are AI fears overdone?

Stock futures are firmer in Europe today, as risk sentiment follows the better day for US stocks on Tuesday. The  better mood on Wall Street came after Anthropic, who has released several AI plug ins that have caused major angst in recent weeks, announced a new AI plugin that will work with software providers to automate work in HR and investment banking.

Tech and consumer discretionary stocks rallied on the back of this development, and there were some notable gains for software and service providers, which clawed back recent losses. Applovin, Oracle, Adobe, and IBM all rose more than 2% on Tuesday. While these stocks are still deeply in the red YTD, the Anthropic news might reinforce hope that AI will integrate with software providers rather than replace them. This could be a powerful message that helps soothe investors who have been caught in an existential crisis about the future of the global economy in the age of AI.

It will be interesting to see if the latest Anthropic development, with AI becoming a partner to industry and tech firms rather than a threat, can also calm fears around private credit. There is still some angst around the future of private credit, with UBS publishing a report that said private credit defaults could reach 15% in a worst-case scenario. They said that the trigger for such an event would be ‘rapid and severe AI disruption, which could affect technology. The report also said that private credit defaults are currently between 3% and 5%. We will be watching banking stocks today to get direction on this.

Nvidia: can a monster set of results boost the market mood?

Tech will remain in focus as we wait for Nvidia’s results later today. A monster set of results are expected, as the chip maker continues to benefit from massive capex spend by the hypercalers. Nvidia has been relatively unscathed by the ferocious sell off across some tech sectors in recent months, and they are expected to deliver monster revenues to the tune of $65.9bn for last quarter. Nvidia will release results after the US market closes tonight. The average move in the stock price after earnings reports is 4%, based on the last 8 quarterly releases. If Nvidia can deliver big results and strong forward guidance, then it may also help lift sentiment towards tech later today.

The Key question for the BOE: A March or an April cut?

The news about the UK’s energy price cap, may boost the chances of a March rate cut  after a mild scaling back of rate cut bets for next month following Bank of England testimony to the Treasury Select Committee that sounded concerned about the strength of service price inflation. The energy price cap dip in April is down to lower wholesale energy prices. It should underpin hopes for a rate cut in the coming months. While a cut is still expected in either March or April, the timing of a second cut is in question, the second cut is now not expected until November, which suggests that he path for inflation in the coming months is important for the timing of future rate cuts, and the deteriorating labour market is not the only concern on the mind of BOE policymakers.

UK earnings round up

Futures suggest that the FTSE 100 will lead European indices higher this morning. HSBC could be a top performer after its profits for last quarter beat expectations and its shares were higher by 4% in Hong Kong. This could be balanced by some bad news for Diageo. It said that sales this year will be hit by ongoing weakness for spirits in the US, and it cut its dividend to shore up cash. The Diageo share price has been outperforming the overall market this year, and is up 17% YTD, as consumer stocks received a boost. However, this comes after years of weakness, and today’s earnings report could see investors lose some enthusiasm for the drinks maker.

Overall, it is worth watching to see if sentiment can remain perky, and how the market reacts to Nvidia’s results later on Wednesday.