Markets try to stabilise into the weekend

Sentiment has recovered into the end of the week with the major US indices trading with a positive bias after the sell offs seen earlier this week. The tech sector has been a major underperformer in the past few days with concerns about overinvestment in the AI sector resurfacing after the current earnings season has revealed increased expenditures in the sector.

Furthermore, the heavy selloffs in the metals market had left many investors having to liquidate positions elsewhere in search for more liquidity in their portfolios, leading to a bearish correction in equities and beyond. However, the momentum seems to have stabilised on Friday, with Gold and Silver both trading in the green, alongside global equities.

But caution remains. The markets are likely to remain choppy in the coming days as they rebalance after the heavy moves and fresh data is released next week, with focus on the latest employment data in the US after it was delayed following a 4-day partial government shutdown.

In the UK, a fresh bout of political uncertainty following speculation over Keir Starmer’s future has caused a selloff in domestic assets. The sharp steepening of the gilt yield curve is especially telling. While short-dated yields have benefited from an improving interest-rate outlook and expectations of eventual Bank of England easing, longer-dated yields have remained elevated. This widening gap reflects growing unease about the UK’s longer-term fiscal trajectory, with investors demanding a higher risk premium to hold debt that is more exposed to political and budgetary decisions. In effect, markets are distinguishing between monetary policy relief in the short term and fiscal risk in the long term.