European stocks steadied early Tuesday and gave a little back after a sharp rally at the start of the week on the big drop in oil prices.
Brent backed off below $99 at one point on Monday but is trading firmer this morning around $102, leaving the main bourses trying to hold on to a rally which saw the Stoxx 600 rise +1% for its best day since 2 July and the FTSE 100 rise +0.75%, slightly trailing peers due to oil, though a fifth straight day of gains for copper supported basic resources as a rebound in chip stocks eased fears about a slowdown in the data centre buildout.
In the US, chip stocks rallied for a 5th straight session, with the Philly Fed semis index +4.3%, sending the Nasdaq Composite to a record high on Monday.
Meta shares led the surge, posting their best day in over a year. Meta jumped +11% after the successful launch of its new AI model, with its Muse agent overtaking ChatGPT as the top iOS free app on Friday, registering some 730,000 downloads in the last five days. Investors now see Meta as a leader in AI. It’s also got all our data…as consistently noted in these columns, Meta and Google seem to me the best placed to monetise AI.
Meta’s surge led the Mag7 higher, with the Roundhill Magnificent Seven ETF hitting a record level for the second straight session. Chips lifted all boats with the S&P 500 +1.5% to 7,764, while the Nasdaq rose +2.26% to set a record closing high and the Dow Jones was up a more modest +0.7%.
Meta’s Muse-inspired optimism sparked a wave of buying and short covering across leading chipmakers who make the CPUs required for agentic AI. AMD shares rose nearly 10% as it hit $1tn in market cap, while Intel +12% and Arm Holdings +17% joined the party. Crypto stocks also had a good day as they traded with the Nasdaq’s risk-on flow, with Strategy +10% for the session and bitcoin at ~$85,000.
Helping sentiment, oil prices moved back to their lowest level in more than two weeks since 9 September, as President Trump indicated he might be willing to hold talks with Iranian president Masoud Pezeshkian on the sidelines of the UN General Assembly in New York. Mike Walz, the US ambassador to the UN, said on X that “the door is open for Iran back to the negotiating table if they do so in good faith”. Oil prices were also down because data showed increased Saudi crude flows through the Strait, although Iran-backed Houthis have escalated attacks on Saudi Arabia.
If talks do happen it could ease fears about further escalation and would come ahead of key talks between Trump and Chinese president Xi Jinping at a state dinner on Thursday, where AI and tariffs are bound to be sharing the billing with events in the Middle East. I don’t think we will see a grand bargain of any sort but the one-year truce on trade expires soon so markets want some detente. Trump will address the UN today…usually quite a fun listen.
With oil backing off bond yields declined, with the US Treasury 10yr at 4.95%. However, UK gilt yields are a touch higher this morning with the latest data showing public sector borrowing rose more than expected to £18.3bn in August, some £3.5bn ahead of the forecast by the Office for Budget Responsibility. Rising debt interest costs mean less headroom for the Chancellor – perhaps at least half of what Reeves left him in March – and forces the Burnham leadership to confront the dismal fiscal arithmetic head on way earlier than he had hoped. The question is whether they can solve the equation while keeping his party and markets happy – an election may not be far away.
On the FTSE, Kingfisher shares leapt 9% after the DIY-to-building merchant reported solid profit growth and upgraded guidance for the year. Screwfix was a standout with growth of +5.6% on a like-for-like basis. The company raised full-year 2027 profit guidance range to £595mn-£635mn, up from £565mn-£625mn with management much more confident of achieving the higher end of the range. They also raised the free cash flow forecast to a range of £480mn-£520mn from £450mn-£510mn previously. This looks like a triumph of execution over consumer and macro headwinds.
Elsewhere, Smiths Group rose +4% as the engineering group beat expectations with full-year operating profit of £399mn. TUI narrowed its profit range for the year after summer bookings were down 5%, though it pointed to a +2% rise in the last four weeks.
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