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“Despite the sell-off in the US overnight, emanating from the technology sector, UK stocks were pretty steady in early trading on Wednesday,” says AJ Bell head of financial analysis, Danni Hewson.
“The index was not helped by the hotter than expected UK inflation report – which gave sterling a modest lift. A stronger pound hits the relative value of the FTSE 100’s dominant overseas earnings.
“The implications for interest rates of the higher than anticipated CPI reading also saw housebuilders foundations quiver given, in turn, what this might mean for mortgage affordability and availability.
“Wound care specialist Convatec was the top FTSE 100 riser as a $300 million share buyback proved a comforting balm for investors.”
Artificial intelligence
“For the most part the AI theme has been on a one-way track upwards but there have been occasions when the enthusiasm has been punctured and, after the DeepSeek shock earlier this year, last night saw another bump in the road.
“A report produced by a branch of the Massachusetts Institute of Technology is being pegged as the culprit after several AI-related names slumped overnight. The research strikingly suggested 95% of companies are getting zero return on their investment in generative AI.
“These findings follow hot on the heels of comments from OpenAI CEO Sam Altman that suggested investors are ‘over excited’ in this area.
“For now, this looks like a mild and possibly necessary correction after an extremely strong run for this space and the companies within it. Investors will be watching closely to see if AI stocks stabilise from here or the selling continues. Nvidia’s quarterly earning next week now look even more crucial than they already were.”
Anglo American
“Mining outfit Anglo American saw its shares dip as US rival Peabody pulled out of a $3.8 billion deal to buy its coking coal assets. This follows an explosion at the Moranbah North mine in Australia earlier this year, with the site still closed.
“Peabody in turn blowing up the transaction undermines a key plank in Anglo’s restructuring plan – put in place last year after the company fought off a hostile takeover by BHP.
“It doesn’t help that selling these assets was seen as the simplest task, when compared with offloading its nickel, diamond and platinum operations.”
Pop Mart
“The craze for the elf-like Labubu dolls is translating into big profit and cash flow for the Chinese toy company which sells them – Pop Mart.
“Because these toys are typically sold in a blind box format – or in other words if you grab one off the shelf you don’t know what you are going to get – people make repeat purchases to get the dolls which are missing from their collection.
“Net profit was up a frankly astonishing 400% in the first six months of the year – beating the guidance for 350% growth given just last month.
“Consumers can be capricious when it comes to this type of fad though and Pop Mart will have to work hard to build on this success if it is to avoid being a one-hit wonder.
“With the shares at a record high and with the company now valued by the market at more than established toy makers Hasbro and Mattel combined it has very little margin for error.”
Danni Hewson: Head of Financial Analysis
Danni Hewson is AJ Bell's Head of Financial Analysis. She joined the company in 2021 and is responsible for producing analysis and commentary across a broad range of subjects, from financial markets to economics and...
