What’s driving the recent volatility in the markets?

CGTN Europe

CGTN Europe interviewed Fiona Cincotta, Analyst, City Index

Transcript

00:00So extreme volatility continued in global stock markets on Friday.

00:05Asian shares ended the day sharply lower.

00:08Europe followed suit when markets here opened.

00:11But later, comments from New York Federal Reserve President John Williams changed all that.

00:16He suggested the U.S. Central Bank could cut rates again in December.

00:21And investors jumped on that and pushed AI stocks higher again.

00:25OK, first let's take a look at how European stock markets ended the day.

00:30The Stock 600 slid for another day as those fresh AI fears hit sentiment.

00:36The Europe-wide index closing out Friday around 0.5% lower, down 2.25% on the week.

00:43In London, the FTSE 100 reversed early losses on the back of hopes for lower U.S. interest rates.

00:49The blue chip index finished basically flat on the day, but down 1.8% on the week.

00:56And in Frankfurt, the DAX just shy of 1% lower on the day and 3.25% on the week.

01:02The index is now significantly lower than its record high in early October.

01:08And this is the picture on Wall Street.

01:10After a dramatic five days of gains and reversals that you can see here, the S&P 500 is currently slightly up around 0.2%.

01:20Wall Street getting a boost before the open by those comments from the New York Fed President.

01:28The Dow Jones faring slightly better.

01:30It's up around half a percentage point.

01:32Investors hoping easier monetary policy, a lending rate cut, will revive a sluggish economy and justify historically high stock valuations.

01:42But continued worries about NVIDIA erased an earlier bounce on the tech-heavy Nasdaq.

01:48It's down around 0.2%.

01:49Analysts say the company is the lightning rod for the market's tech anxiety,

01:53given it makes much of the hardware that runs large language models such as Claude and ChatGPT.

02:00Well, Fiona Jensen-Cotter is an analyst at Citi Index.

02:04She joins us now.

02:05Fiona, please make it make sense for me.

02:08What's going on?

02:10I'd love to be able to.

02:12But you know what?

02:13I think there are quite a lot of factors at play here.

02:16So on the one hand, we've got the AI worries over stretched valuations.

02:21Even though we saw those really encouraging numbers from NVIDIA,

02:27their earnings beat expectations, their forecasts beat expectations.

02:31There was a lot to like.

02:33But the fact that it wasn't able to sustain a move higher does suggest that the market is still nervous about the AI trade,

02:42about it being slightly overvalued.

02:45I think the results do actually support the AI narrative.

02:48But I think what the question here is, is more to do with sort of the near term monetization implications

02:55and whether spending is just a little bit too high.

02:58Yeah, it's an interesting one because despite NVIDIA results,

03:02those fears about an AI bubble just crept back in really quite quickly.

03:07Are we going to see those fears continue until the big investors start seeing bang for their buck?

03:15Well, I think, I mean, that's a good question.

03:17When will this stop?

03:19And I think, you know, what's interesting is I do consider that the market is still acting rationally,

03:24which is quite important.

03:25So it's questioning, you know, when are we going to see the returns?

03:29Is this spending too high?

03:31And that all relates back to a rational market behavior, which isn't necessarily worrying.

03:37And, you know, especially when we think about the extent of the rally that we have seen over the past year,

03:44particularly, but even going back further than that, it's been a really strong rally.

03:49So the fact that we are seeing some pullback, some drawdown,

03:52I think just suggests that the market also is a little bit exhausted from this trade.

03:56So I don't think it's necessarily, you know, very, very concerning.

04:02But I think there is reason to be cautioned, and that's not a bad thing.

04:05Do you see any parallels with the dot-com bubble of the early 2000s?

04:09They were right, but it was too soon, and a lot of people lost a lot of money.

04:15Yeah, it's difficult because often with bubbles, you don't necessarily know you're in one until it's too late.

04:21But I think, as I said, you know, the fact that the market does appear to be acting rationally

04:25and we have had even Federal Reserve Chair Jerome Powell suggest that maybe things are a little bit overvalued,

04:32but also that there are companies here that are making money.

04:35So it's not necessarily a direct relation, I think, to the dot-com bubble in that respect.

04:41But as I said, you know, reason to be cautioned.

04:43Yes, that's not a bad thing, but not necessarily definitely in a bubble.

04:48And where are we on another rate cut in the U.S.?

04:51The jobs data suggesting, you know, I mean, again, a lot going on there.

04:55That's right. You know, there seems to be very sort of choppy, changing sentiment

05:02as far as expectations surrounding the next Fed rate cut.

05:06We had the minutes from the October Federal Reserve interest rate decision a little bit earlier in the week,

05:12and they were a little bit more hawkish, suggesting that policymakers may be more cautious about cutting rates in December.

05:18And then we had that jobs data, which presented a mixed picture, you know,

05:22119,000 jobs created, but higher unemployment.

05:27So I think, you know, that sent, together with the FOMC minutes,

05:31that sent rate expectation cuts down to around 27%.

05:35However, they've jumped higher today, and that was on comments from Governor Williams,

05:42who has suggested that there could still be room for a cut.

05:44So, you know, the fact that we're seeing these very skittish moves does suggest

05:48that this is quite a nervous market, though, that's very focused on what the Fed will be doing.

05:53Yeah, absolutely. Thanks so much for being a clear voice of reason,

05:57Fiona Sincarta, analyst at Citi Index.

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