Daily market update: Barclays, Volex

European markets faced a tricky start on Monday as the political unrest in France shows little sign of letting up and as AI and geopolitical concerns continue to weigh.

The sell-off in US tech seen late Friday on concerns about the big debt being built up as companies spend heavily on AI has cast a shadow over the start of the week for financial markets.

France apart, government bond yields are stable, and oil prices have pulled back from recent highs, but both remain elevated to reflect the ongoing uncertainty around Ukraine and the Middle East.

A report from EY showing UK profit warnings at their highest level in two years shows the challenges posed to businesses by the uncertain consumer backdrop and mounting inflation and borrowing costs.

It raises the stakes further ahead of next week’s Budget with domestic-facing companies likely to be nervous about any new regulatory or tax changes which might dial up the pressure on them even further.

Barclays

Reports in the Financial Times that Barclays is under scrutiny from the Bank of England’s Prudential Regulation Authority over the handling of private credit exposure have created some inevitable nervousness among investors.

Regulatory issues are always likely to raise hackles and private credit itself is one of the key worry points for the market right now.

The concerns are quite technical and relate to how its exposure to private credit loans had been recorded for accounting purposes and the impact this had on the amount of capital Barclays has to hold as a buffer against future turbulence.

The market reaction, while negative, is relatively measured, suggesting markets are in ‘wait-and-see’ mode right now.

But on the basis any probe could be extensive, it could remain a cloud hanging over the business for some time to come.

Volex

At the outset of the AI theme, the London market seemed to have few if any beneficiaries but, as the theme has broadened out, that has changed.

With the infrastructure demands associated with the AI roll-out expanding at pace, UK companies are getting their slice of the action and that’s evident with power and data connectivity business Volex.

However, given the lofty expectations around AI, even a hint of disappointment can have a negative impact, and Volex shares took a step back today as growth starts to moderate in the data centre part of the business.

Today’s pullback follows a very strong 12-month performance for the share price and overall, the picture remains positive, with its EV division motoring ahead impressively.

Shareholders may have held out some hope of profit being ahead of rather than just at the upper end of expectations and will be looking for Volex to quantify in more detail the impact of rising inflationary pressures in its supply chain.