Equity markets continue to show resilience despite a whirlwind of worries around AI spending, high bond yields, inflationary pressures and the potential for multiple interest rate hikes over the coming 12 months.
What initially looked like a choppy session for Wall Street on Tuesday turned into a calmer journey as the day went on. Futures prices imply modest gains in the US on Wednesday, and that upbeat outlook was also reflected in European equities which shrugged off the volatile backdrop to hold firm.
On the FTSE 100, miners and defence stocks were in demand, while pharmaceuticals showed weakness.
ASML
ASML has given a clear indication that demand for AI-related components is not letting up. It makes equipment to manufacture computer chips and demand is so strong that it might not be able to give customers what they want in 2027 and 2028.
ASML’s kit is incredibly expensive, so customers won’t place orders until they are certain they need it. For ASML to say that discussions with customers are moving beyond next year would suggest the AI infrastructure boom continues to run at top speed.
ASML is looking at ways to increase capacity, but it needs to be careful not to over-expand given the risk that demand could peter off by the time its extra production facilities are operational.
Markets are nervous about excessive amounts of money swashing around the AI space as companies build out infrastructure to support the advanced technology. Increasingly, people are asking about when companies spending this money will get a positive return on their investment.
ASML’s shareholders will naturally want the company to get as many orders as possible, yet they will also want management not to get carried away. The worst thing a manufacturing business can do is expand production facilities and end up only running them at partial capacity because they over-estimated long-term demand.
Robert Walters
Robert Walters has shown that all is not lost in the recruitment industry. It has reported decent net fee growth in the UK, driven by success in placing candidates into permanent roles.
This is interesting because other recruiters such as Hays have talked about struggles in that part of the market, no doubt because companies aren’t feeling overly optimistic about the future and are being cautious about investing in their business with extra permanent staff. Many companies continue to seek flexibility with their labour force, preferring to take on contractors rather than commit to permanent employees.
Temporary job placements in Japan and New Zealand were another strong spot for Robert Walters in its third quarter, with success also seen in places like Spain and pockets of the Americas. These helped to prop up the business which is important given weakness elsewhere. The Middle East has been problematic for the group, and France and the Netherlands have been disappointments. It just goes to show the importance of recruiters having geographically diverse operations.
Russ Mould: Investment Director
Russ Mould is AJ Bell's Investment Director. He has a Master's degree in Modern History from the University of Oxford and more than 30 years' experience of the capital markets.
He started out at Scottish...