Microsoft in focus as chip selloff deepens and oil rebounds

Summary

Microsoft is in focus ahead of results as a deepening global chip selloff continues to raise doubts about the sustainability of AI investment. Asian semiconductor shares extended sharp losses despite strong SK Hynix profits, while investors remained cautious following last week's disappointing cash flow updates from Alphabet and Tesla. Oil prices moved higher after renewed Middle East tensions, while currency markets remained focused on the US Federal Reserve's policy decision later today.

Equities

The FTSE 100 closed 0.90% higher at 10,878.85 points on Tuesday, while the FTSE 250 gained 0.46%. Consumer-focused shares supported the London market, although energy stocks fell 1.43% and banks declined 1.37%.

Unilever jumped 8.58% on Tuesday, marking its strongest one-day rise in four years. The consumer goods group raised its annual sales forecast and reported its best quarterly volume growth in more than a decade, giving investors a clearer sign that its underlying business is improving.

Coats rose 9.6% on Tuesday after the thread manufacturer reported higher first-half profit. Canal+ climbed 9.75% after reporting a small increase in half-year revenue, as growth in its established operations offset a narrower decline at MultiChoice.

Barclays fell 4.79% on Tuesday despite reporting a better-than-expected increase in first-half profit. Man Group also traded at its highest level since 2010 earlier in the session after the fund manager reported stronger-than-expected growth in assets under management, although the shares later gave back part of the advance.

In the US, the S&P 500 closed 0.21% higher at 7,428.78 points on Tuesday. The Dow rose 1.03% to 52,747.32, while the Nasdaq fell 0.22% to 24,876.91 as semiconductor shares remained under pressure.

The PHLX semiconductor index dropped 4.5% on Tuesday and has now fallen around 25% since its record close on 22 June. Corning tumbled 12% after its third-quarter sales forecast missed expectations, while IQVIA Holdings jumped 14% after raising its annual profit guidance.

Coca-Cola rallied 5% on Tuesday after increasing its full-year revenue and profit forecasts. Boeing rose 4.8% after generating positive free cash flow, supporting management’s case that its turnaround programme is making progress.

Apple gained almost 1% on Tuesday to close at $340.08 after briefly reaching $342.89 and a market value of $5 trillion. Microsoft rose 1.1% before its results on Wednesday, while Amazon slipped 0.2% ahead of its earnings announcement on Thursday.

Forex & Commodities

The US dollar eased early on Wednesday after reaching a one-month high on Tuesday, as investors awaited the Federal Reserve's latest interest rate decision. The dollar index slipped to 101.3, while markets continued to expect the Fed to leave rates unchanged, although attention remained on any guidance from Chair Kevin Warsh. Markets are currently pricing around a 32% chance of a 25 basis point rate rise, with expectations for a September increase remaining elevated.

Sterling edged higher early on Wednesday to $1.330, recovering slightly but remaining close to its weakest level since the start of July. The euro also strengthened modestly to $1.140 after falling to a one-month low in the previous session. The Japanese yen firmed to 163.4 per US dollar, keeping intervention risks in focus, while the Australian dollar fell to $0.6954 after lower-than-expected inflation data reduced expectations of further Reserve Bank of Australia rate rises.

Spot gold traded little changed early on Wednesday at $4,025 per ounce as investors waited for the Fed's policy announcement. Markets are also looking ahead to interest rate decisions from the Bank of England and the Bank of Japan later this week, with both central banks widely expected to leave policy unchanged. Commerzbank lowered its year-end gold price forecast to $4,500 per ounce, while raising its outlook for silver.

Oil prices climbed early on Wednesday, with Brent crude rising to $87.24 per barrel and WTI reaching $81.99. Prices recovered after three consecutive sessions of declines as tensions in the Middle East intensified and US crude inventories fell by an estimated 3.300 million barrels. OPEC+ is also expected to pause planned production increases for three months from October after completing its scheduled supply increases.