Capital Idea: European Open, 11th December, 2025

• Oracle’s results reinflames concerns about AI-ROI

• Stocks and futures drop, raining on the Fed’s parade

• AI-ROI and rates policy become more entwined

It’s the one you don’t see that knocks you out. It’s an axiom true in boxing, life and markets. Last night, while hardly knocked-out, the markets were knocked about after Oracle’s results rained on the Fed’s parade. It showed that cloud growth was a bit lower than expected and outlays for AI investments picked-up: in essence, stoking fears, which had recently simmered down, related to the AI-ROI trade. Asian stocks slipped after what had looked like a constructive open following a pop in risk assets after the Fed. European stocks are also looking sluggish to kick-off the day and US futures are being weighed down, pointing to a sell-off that will unwind the post-FOMC gains from yesterday.

(Source: Trading View)

(Past performance is not a reliable indicator of future results)

An interesting dynamic that could be emerging in the markets is how intertwined the AI-ROI trade could be becoming with monetary policy. The secret ingredient in the Fed’s (relatively) dovish cut is the expectation of sustained strength in productivity growth, mostly, albeit not entirely, driven by the expected pay-offs from artificial intelligence. It’s what underpinned the Fed’s projection of steady unemployment, rising growth but falling inflation next year. Much like Wall Street investors, the Fed is making a bet that there will be material and imminent returns from all of this artificial intelligence investment, turning something that is inflationary right now because of massive capital expenditure, to something disinflationary because of an increase in capacity. As a result, any disappointing corporate news, like that which was released last night, might carry beyond equity markets and into rates too.

For market insights, please visit: https://capital.com/en-gb/analysis/kyle-rodda