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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Global stock markets have enjoyed some relative calm in recent sessions, as the violent sector-by-sector sell-offs of early February that wiped billions of dollars from the value of global companies have subsided.
The recent bout of volatility began with a rout in software stocks, as investors questioned whether AI was about to disrupt business models across the industry. Panicked selling soon spread to other sectors including wealth management, real estate and advertising.
But in the past few trading sessions, the market mood has turned more sanguine. US stock indices have pared back some of their losses, ticking higher in the past week, and single-stock volatility has declined. BlackRock analysts this week described the episode as “indiscriminate selling” and said “the broad software sell-off shows how markets can miss nuances in the near term”.
Although some of the recent declines might look overdone, investors agree that the vast scale of this technological shift means the broader volatility is far from over.
“We think the increased volatility and complexity around the AI narrative . . . is likely to persist,” wrote Goldman Sachs economist Dominic Wilson this week.
Emmanuel Cau, head of European equities strategy at Barclays, said that while some areas of the market are looking appealing on a short-term basis after the sell-off, “concerns around AI-led disruption and hyperscaler capex spending have not disappeared”.
Investors might feel ready to buy the dip in some heavily sold stocks for now — but the question of how AI is going to upend global business may have only just begun. Nvidia results next week will be the next test of the market’s faith in AI. Emily Herbert
Will a by-election reignite UK political risks?
UK markets have steadied since speculation earlier this month over a leadership challenge to Prime Minister Sir Keir Starmer over his prior appointment of Lord Peter Mandelson as ambassador to the US.
But this Thursday’s by-election in Gorton and Denton, a parliamentary seat in Greater Manchester, could strike another blow against Starmer’s leadership of the governing Labour Party.
Political analysts are viewing the contest as a crucial test of the party’s resilience to the challenge posed by the Greens and particularly Reform UK, a right-wing party which has tried to frame the contest as a “referendum” on Starmer.
Rising anticipation of Bank of England interest rate cuts has sparked a rally in gilts in recent sessions, taking the yield on the 10-year gilt below 4.4 per cent, close to its lowest level in a year. A revival in political risks after Thursday’s by-election, or following regional elections in May, has the potential to disturb the calm.
“A loss to Reform would resurface questions about Starmer’s leadership — and could be the trigger for the leadership contest investors are expecting,” said Mujtaba Rahman, managing director for Europe at consultancy Eurasia Group. Ian Smith
Did US producer price inflation slow in January?
US producer price inflation is expected to have slowed in January, which could provide ammunition to dovish members of the Federal Reserve looking to cut interest rates.
According to a survey of Reuters economists, producer prices are forecast to have risen at an annual rate of 2.8 per cent in January, slower than the 3 per cent recorded in December. Excluding the volatile food and energy sectors, producer prices are expected to have risen 0.3 per cent month-over-month, slower than the 0.7 per cent rate the previous month.
The producer price index measures the cost of goods and services at a wholesale level, showing trends in prices before they reach the consumer. The PPI report is less scrutinised by market players than the consumer price index report, but the results feed into the Fed’s preferred gauge of inflation, the personal consumption expenditures index, which the central bank relies on to determine monetary policy.
CPI in January fell more than expected to 2.4 per cent year-over-year, from 2.7 per cent in December.
Traders in the futures market are betting that the Fed will make two or three quarter-point interest rate cuts this year. But several members of the Fed board have expressed a desire to loosen policy more quickly or by more than the market has priced in.
Fed governor Stephen Miran said on Thursday that he believed the central bank should cut rates by 1 percentage point this year (though down from his December projection of 1.5 percentage points). Fellow governor Christopher Waller has dissented from the Fed’s decision to hold rates steady at the past two policy meetings, advocating instead for cuts.
Softer producer inflation data, after the slower pace of consumer inflation, could help the Fed’s dovish members make the case for rate cuts sooner.
Market participants will also be watching the data for the effects from tariffs. Kate Duguid
