Fed Holds Rates, Alphabet Slide Rekindles AI Worries

The FTSE 100 closed 0.1% higher on Wednesday as bank gains from a softer-than-feared tax increase in chancellor John Healey's first budget offset losses in GSK and Unilever. Wall Street closed higher for a third straight session after the Federal Reserve held interest rates steady, though Alphabet's post-earnings slide revived worries over AI spending. Markets now turn to the European Central Bank's rate decision and US growth and inflation data, both due later on Thursday.

Equities

London's FTSE 100 closed 0.1% higher on Wednesday, recovering from an early dip as banks rallied on relief over the budget. The FTSE 250 reversed an earlier climb to a near two-month high and ended the session 0.3% lower.

Lloyds, NatWest and Barclays all rose after chancellor John Healey's budget raised the bank profit surcharge to 6% from 3% for 15 months, a smaller increase than investors had feared. Standard Chartered climbed further after lifting its full-year growth and profitability targets on third-quarter income that beat estimates.

Betting groups Entain and Evoke also gained after Healey raised Machine Games Duty by less than the market had expected. Housebuilders Taylor Wimpey, Persimmon and Barratt Redrow slumped after the budget offered no clarity on funding or timing for a promised first-time buyer scheme, marking their steepest one-day fall since January 2025.

GSK fell after its cost-cutting plan and pipeline update failed to reassure investors, while Unilever dropped on softer results from its foods division.

On Wall Street, the Dow Jones Industrial Average rose 0.19%, the S&P 500 gained 0.28% and the Nasdaq Composite added 0.27%, with all three closing higher for a third straight session after the Fed held interest rates steady. Third-quarter earnings season is in full swing, with the large majority of companies that have reported so far beating estimates.

Micron jumped after South Korean rival SK Hynix reported a more than sevenfold rise in quarterly profit, lifting chipmakers broadly. Robinhood slipped after weaker cryptocurrency trading dragged its quarterly profit below forecasts.

Alphabet tumbled in after-hours trading after its results missed investor expectations and reignited concerns over AI spending, while Microsoft rose on its own quarterly report.

Investors are now awaiting Thursday's economic data and the European Central Bank's meeting for further clues on the interest-rate path in both the US and Europe.

Forex & Commodities

The dollar index was little changed, up about 0.1%, as it held onto most of Wednesday's slide following the Federal Reserve's decision to leave interest rates unchanged. Markets are now pricing in a greater chance of a quarter-point rate increase in December, after Fed Chair Kevin Warsh said policymakers remain ready to act if needed.

Sterling held broadly steady against the dollar after British markets took chancellor John Healey's first budget in their stride on Wednesday. Attention now turns to what his fiscal plans mean for the Bank of England's own path on interest rates.

The euro eased slightly against the dollar ahead of Thursday's European Central Bank meeting, where policymakers are widely expected to hold interest rates steady. The focus is less on the decision itself than on bond-market turmoil in France, which has weighed on the single currency this year.

Gold slipped as investors weighed the Fed's signals and awaited Thursday's US inflation data, putting the metal on track for a second straight monthly decline. Higher interest-rate expectations have reduced the appeal of the non-yielding metal.

Oil eased on Thursday, giving back some of Wednesday's sharp gain. Brent crude had jumped after an attack on a major Saudi Arabian refinery and continued fighting between Saudi-led forces and Yemen's Houthis stoked fears of supply disruption. Prices fell back as hopes grew for revived US-Iran peace talks, after a reported approach from US Vice President JD Vance to Iranian officials.

Elsewhere, the Reserve Bank of New Zealand's decision to hold interest rates added to a busy week of central-bank meetings worldwide, a move that caught investors by surprise.