- More good news for UK equities
- Open AI valuation surge could boost tech
- US stocks brush off shutdown with fresh record
Global stocks are shrugging off the US government lockdown and, two days in, volatility remains subdued, and the S&P 500 reached another record high on Wednesday. The Nasdaq failed to reach a fresh record on Wednesday, but it remains tantalizingly close.
European markets were a sea of green on Wednesday, and the FTSE 100 reached a fresh record. Futures point to a more subdued open on Thursday, which is to be expected after a 1% daily gain, the strongest since August. The rally was powered by the pharma sector, with big gains for AstraZeneca in particular, which rallied to its highest level in 11 months.
Tesco extends its lead at the top
There could be more good news for the FTSE 100 today, Tesco released a trading update today and increased its profit forecast for the year. The UK’s largest grocer reported sales growth of 4.3% in the first half of this year and increased its market share through keeping prices competitive. It also said it had recorded double-digit growth in its ‘finest’ range of products and had expanded its rapid delivery service Woosh. It is trialing personalized pricing for its Clubcard scheme and has announced that it is on track to meet its £500mn cost savings target, through technology investments including in its tills.
Budget boost for retailers
There was more good news for Tesco and other retailers this morning, Rachel Reeves could announce in next month’s budget that retailers will be removed from the top tier of business rates to keep food inflation subdued. This could boost the entire sector this morning, and add to the upside momentum that we have seen in UK stocks this week.
Can Reeves save the City?
In another boost to the City, there is also speculation that the government will exempt newly listed UK shares from stamp duty for 2-3 years. This market-friendly budget measure could help ease London’s listing crisis, as stamp duty is higher here than elsewhere. Overall, Tesco results, positive speculation on budget measures and momentum could boost the FTSE 100 as we move through October.
Open AI’s monster valuation
Momentum remains to the upside, and US equity market futures are pointing to a higher open later today. The focus on Thursday could turn to AI. OpenAI, which is not a listed company, completed a deal to allow employees to sell their stock in the company, which gives the GPT large language model maker a valuation of $500bn. Earlier this year the company was valued at $300bn.
To put this into context, after yesterday’s stunning rally, AstraZeneca is the UK’s most highly valued company once again and has a market cap of $259bn, just under half that of OpenAI. OpenAI is now the world’s most highly valued start up, shooting past the $400bn valuation for Elon Musk’s SpaceX. Investors sold $6.6bn of stock at this lofty valuation.
This high valuation may lead to some calls about irrational exuberance and animal spirits. Only last week, David Einhorn, the well-known short seller, said that investments in AI and the products offered by the likes of OpenAI could lead to capital destruction if they don’t deliver the level of productivity and revenue magic that such lofty valuations are expecting them to.
Can OpenAI see off threat from Meta?
However, there is one reason why Open AI’s top brass may be happy that the valuation is so high, employee retention. If employees can get rich through selling their stock in private markets, then they may not leave the company. Other tech firms, such as Meta, have been trying to lure OpenAI employees with 7-figure pay checks, so this may stop some employee leakage.
Overall, from a broader market point of view, this could add to the upward momentum in US stocks led by the tech sector and help extend this year’s rally into Q4.
$4,000 the next target for the gold price
Gold also made a fresh record high on Wednesday, although it backed away from the $3,900 level after a weak US private sector payrolls data. The gold price is up $6 so far on Thursday, and a break above $4000 seems inevitable. The market is once again pricing in a faster pace of rate cuts, even though there will be no NFP release this week, other labour market indicators suggest that the US Labour market is slowing sharply. The market now expects 4.6 cuts in this monetary loosening cycle, with interest rates falling below 3% in a year’s time. The prospect of Fed loosening could also sustain this stock market rally.
Looking ahead to today, US initial jobless claims would have been the highlight, however, they are not likely to be released due to the US government shutdown. The dollar is one of the weaker currencies in the G10 today, as the prospect of faster rate cuts weighs on US yields, and undermines support for the greenback.
Chart of the day: EURUSD (03.10.2025)
BREAKING: Eurozone PMI slightly lower than expected 📌
Daily summary: Indices flat as shutdown persists, dollar rebounds, Bitcoin around 120K (02.10.2025)
Bitcoin gains 1.25% and breaks above $120,000 🚀
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