Deutsche Bank: Growing chorus of ‘whether we might be on verge of equity correction’
Jim Reid, analyst at Deutsche Bank, said there is talk of whether we are “on the verge of an equity correction”.
The last 24 hours have brought a clear risk-off move, as concerns over lofty tech valuations have hit investor sentiment.
Markets compounded these losses in the early hours of Asian trading but have been rallying back in the couple of hours prior to going to print with US futures clawing back towards flat with the Kospi rallying back a couple of percentage points from early -5% plus losses.
On Wall Street yesterday, the S&P 500 closed down 1.17%, losing ground because of sharp losses among tech stocks, and there was a big slump for Palantir (-7.94%) after its earnings the previous day.
Reid added:
Whilst the moves were only one day’s selloff, the market narrative saw a discernible shift, with a growing chorus discussing whether we might be on the verge of an equity correction. That speculation has gathered pace over the last month in particular, mainly because the Magnificent 7 has diverged from the rest of the S&P 500, which has revived questions about how concentrated this equity market now is. Indeed, whilst the Mag 7 have been advancing in recent weeks, the equal-weighted S&P 500 actually fell in October for the first time in 6 months.
Yesterday’s decline for Palantir (-7.94%) was seen as emblematic of this shift, particularly given they’d actually raised their revenue outlook the previous day. But given their share price had quadrupled in the last year, that’s set the bar incredibly high for any earnings releases. In fact, the Magnificent 7 (-2.28%) led the declines yesterday, with Nvidia itself down by a larger -3.96% as some of those top-performing stocks came under scrutiny.
Key events
On the AI theme….
Google is hatching plans to put artificial intelligence datacentres into space, with its first trial equipment sent into orbit in early 2027.
Its scientists and engineers believe tightly packed constellations of about 80 solar-powered satellites could be arranged in orbit about 400 miles above the Earth’s surface equipped with the powerful processors required to meet rising demand for AI.
Prices of space launches are falling so quickly that by the middle of the 2030s the running costs of a space-based datacentre could be comparable to one on Earth, according to Google research released on Tuesday.
Using satellites could also minimise the impact on the land and water resources needed to cool existing datacentres.
Global stock markets fall sharply over AI bubble fears
Our main story today:
Global stock markets have fallen sharply amid concerns that a boom in valuations of artificial intelligence (AI) companies could be rapidly cooling.
Markets in the US, Asia and Europe have fallen after bank bosses warned a serious stock market correction could be ahead, after a run of record stock market highs led some companies to appear overvalued.
In the US the tech-focused Nasdaq and the S&P 500 suffered their largest one-day percentage drop in almost a month on Tuesday.
Technology shares pulled the Nasdaq lower, which resulted in it closing 2% down. Meanwhile, there were one-day falls for all of the “magnificent seven” AI-related stocks: including the chipmaker Nvidia, Amazon, Apple, Microsoft, Tesla, Google owner Alphabet and Meta, the owner of Facebook, Instagram and WhatsApp.
The government takes its manifesto promises “seriously,” but needs to tackle “big challenges in the economy,” UK cabinet minister Bridget Phillipson said amid speculation that the chancellor Rachel Reeves will rip up Labour’s tax promises.
Phillipson, the education secretary, told the BBC:
Where it comes to our manifesto, of course, we take the commitments we made seriously.
And as the Chancellor was saying yesterday, we know that there are some big challenges in the economy. We’ve made lots of changes already that are putting things on a more stable footing.
That’s why we’ve seen interest rate cuts, we’ve seen growth being the fastest in the G7 in the first half of the year.
But there are some big global factors that remain a challenge, and that’s why we will do what’s what’s right, what’s necessary, both for the public but also for the long-term future of our economy.
She added that the Office for Budget Responsibility’s latest calculations will show
the damage of the chaotic Brexit we saw, the damage of years and years of austerity was even more serious than we anticipated”.
Unfortunately, that is causing major problems in terms of our economy and that’s where we are at the moment, I’m afraid to say.
Wetherspoons ‘more cautious’ ahead of budget
The UK pub chain JD Wetherspoon has reported higher sales but expressed caution ahead of the 26 November budget, after recent government policy changes pushed its costs higher.
The group, which runs nearly 800 pubs across the UK, said like-for-like sales rose by 3.7% year on year in the 14 weeks to 2 November. Bar sales climbed by 5.7%, food edged 0.9% higher, and sales from slot and fruit machines jumped by 8.9%, while hotel room sales fell by 6.3%.
Sir Tim Martin, the chairman, said:
The company is pleased with the continued sales momentum but is mindful of the chancellor’s budget statement later this month and, as a result, is slightly more cautious in its outlook for the remainder of the year.
In a speech yesterday, the UK chancellor Rachel Reeves dropped a strong hint of an income tax increase in the budget, warning everyone will “have to contribute” to helping rebuild the economy and repair the country’s finances.
Martin said Wetherspoon had seen a surge in staff costs following recent policy changes, which is “dramatically widening the pricing differential between pubs and supermarkets, to the anger and consternation of customers”.
A 10% wage rise will increase the cost of a pint by about 15p in a pub compared with about 1.5p per pint in a supermarket, he said. Wetherspoon employs nearly 42,100 people across its pubs and head office.
Martin previously said that increases to employers’ national insurance contributions and wages are adding about £60m to the chain’s yearly costs, while it also faces an impact from energy charges and new packaging taxes.
Drax signs new subsidies deal with UK goverment
Helena Horton
Drax power station, which creates so-called “clean” energy by burning wood pellets, some of which are shipped from the United States, has signed a new subsidies deal with the government.
The biomass plant in North Yorkshire has agreed a price from 2027-31 of £109.9/MWh in 2012 prices (£164 in today’s money), with an agreement that it will reduce the amount of power it produces annually.
The strike price means that Drax is paid that amount no matter the wholesale price of electricity, meaning consumers pay the difference on their bills if the wholesale price is lower than the strike price. The previous strike price up to 2027 was £100/MWh, but the government will pay less in the years ahead because the facility has agreed to burn less wood.
There have long been criticisms of this power station as it has been linked to the burning of ancient woodland, and burning wood creates pollution and emissions.
However, removing it from the grid would be problematic for government because it produces a lot of electricity.
Recent research has found that Drax is the UK’s largest emitter. Emissions from Drax power station were larger than the six largest gas power plants combined in 2024.
Josie Murdoch, analyst at Ember said:
Although this new deal means Drax generation and subsidies will fall, the deal will still see substantial subsidies handed out to Drax every day, all while Drax remains the largest emitting power station in the UK.
Bosses at six water firms had £4m in bonuses blocked under new rules, Ofwat says
Water company bosses were blocked from receiving £4m in bonuses for the last financial year – and the industry regulator is considering forcing companies to report pay received by parent companies following a Guardian investigation.
Ofwat, the regulator for English and Welsh water firms, said six companies had complied with the new rules governing the sector and did not pay out bonuses to bosses. However, it is consulting on further rules to force the disclosure of payments by other companies after the revelation that Yorkshire Water’s chief executive, Nicola Shaw, had received £1.3m in secret payments via an offshore parent company.
The government in June banned bonuses for water companies that failed to protect the environment from the worst pollution incidents, after widespread public outrage over the extent of sewage in Britain’s rivers and seas.
The six companies whose bonuses were banned this year were Anglian Water, Southern Water, Thames Water, United Utilities, Wessex Water and Yorkshire Water, all of which did not give their directors an annual bonus and other relevant performance-related pay, according to Ofwat’s definitions.
Despite the ban and the significant scrutiny on the sector, Guardian analysis found that the pay of water company chief executives in England and Wales rose by 5% in the last financial year to an average of £1.1m – although the pay awarded to the bosses of the six companies did fall.
There were outliers even among the six: the £1.3m given to Shaw was only disclosed after the Guardian raised questions about the lack of transparency.
Ozempic maker Novo Nordisk cuts sales and profit forecasts again
The maker of the blockbuster Ozempic and Wegovy jabs has cut its sales and profit forecasts again, as it continues to fall behind in the competitive market for obesity and diabetes treatments, losing ground to US rival Eli Lilly, the maker of Mounjaro and Zepbound.
Novo Nordisk’s chief executive, Mike Doustdar, who took the reins in August, said the reduced guidance was because of “the lower growth expectations for our GLP-1 treatments”.
“The market is more competitive than ever more,” Doustdar said in a video message accompanying the company’s third-quarter results.
The Danish pharmaceutical firm’s rate of profit growth has slowed and its share price has slid after losing ground to Eli Lilly. Clinical studies have shown that Mounjaro is more effective in causing weight loss than Wegovy.
M&S boss urges chancellor not to ‘slap more taxes on everyday economy’
Sarah Butler
Marks & Spencer boss Stuart Machin said Rachel Reeves’ speech yesterday has only made his customers more worried about rising taxes, as he called on the chancellor not to slap “more taxes on everyday economy, that wouldn’t be a growth strategy”.
Speaking to journalists after the retailer reported a halving in half-year profits, Machin expressed frustration about the delayed budget, saying “we are all waiting for the 26th” with “planning for the worst with the budget and hoping for the best”.
The chancellor will present her budget on 26 November, a month later than usual.
In a speech yesterday, she refused to rule out tax rises, insisting she must “deal with the world as I find it, not the world as I might wish it to be”.
Reeves foreshadowed an income tax increase, a breach of Labour’s manifesto commitment, as a result of the public finances being in a worse state than expected after “years of economic mismanagement”.
Machin said clothing is having a tough time – partly because of ongoing issues related to the cyber-attack in April, which hit M&S sales hard, but also the warm autumn.
UK watchdog extends consultation on £11bn car loans compensation scheme
Kalyeena Makortoff
The Financial Conduct Authority has extended its consultation on the £11bn compensation scheme over the loan scandal, in a move that notably pushes the deadline onto the other side of the UK’s crucial autumn budget.
It comes after lenders and consumer groups said they needed more time to analyse extensive market data, with the main consultation paper alone running more than 300 pages long. The deadline has now been pushed from 18 November to 12 December.
While an extended deadline might not sound exciting on its own, it could end up providing a bargaining chip for banks like Lloyds, Barclays and Santander UK, as the Treasury considers whether to hike taxes on the banking sector in order to strengthen the public finances.
Last week, banking analyst John Cronin of Seapoint Insights, wrote:
If the Treasury’s consultation in a motor finance redress scheme context is extended, this may well give the Chancellor pause for thought before lashing more taxes onto the sector.
He added:
Indeed, it might suit the banks for the argument to be drawn out in a bank taxes context, because if the consultation is still open at the stage of the Budget, Reeves will be presumably in a bind as regards what to do.
The FCA said it still expects to publish final rules in early 2026, saying it will now be either February or March.
Bitcoin dips below $100,000
Bitcoin dipped below $100,000 for the first time since June, but is now back up above that level.
The world’s best-known cryptocurrency is currently trading 1.7% higher at $101,985. This is a long way from the $125,835.92 record high hit in early October, when investors were piling into bitcoin, gold and government debt in what was dubbed the “debasement trade”.
European stock markets fall more modestly after Asia sell-off
Following the sell-off in Asia, European stock indices have fallen more modestly.
The FTSE 100 index in London has slipped by 0.1%, falling to 9,703. The Dax in Frankfurt and the Ibex in Madrid both lost nearly 0.8% while the CAC in Paris and the FTSE MiB in Milan are both down by 0.3%.
In Asia, Japan’s Nikkei index fell by 2.5% and South Korea’s Kospi lost 2.85%, following earlier heavier losses.
Shares in Japan’s Advantest Corporation, which supplies automatic test equipment to companies such as Nvidia, slumped by 6% while Taiwan Semiconductor Manufacturing Co fell by 3%.
“Global equity markets faced a heavy selloff on Tuesday as a cumulation of several factors have led to a rise in uncertainty and risk aversion,” said Daniela Hathorn, senior market analyst at Capital.com.
Today, Asia kicked off the session with another round of selling pressure but the majors have been able to claw back throughout the day, leading to a more stable open in Europe. With the market’s usual data feeds on pause due to the US government shutdown, investors are increasingly reliant on less predictable signals and commentary. That vacuum has heightened sensitivity to policy communication and elevated fears about how long economic and earnings momentum can hold without fresh supporting evidence.
The tech sector, which has been the key powerhouse behind the rally this year, was dragged down by a sharp selloff in Palantir after releasing its earnings, despite reporting a stellar quarter and improving its forward guidance. This momentum shows how investors are starting to question whether these lofty valuations need more than just good earnings to keep them going, leaving the wider equity space exposed to continued downside given the narrow breadth of the current market.
Compounding this data gap is a growing concern that global economic growth may be softening, with a soft PMI reading in the US adding fuel to the fire. At a time when markets have continuously been breaking record highs, modest disappointments or ambiguous indications from macro or corporate fronts are enough to trigger outsized reactions. The Federal Reserve’s unwillingness to commit to further rate cuts at last week’s meeting has been a clear example of that.
Overall, the AI-investment boom that has fuelled the rally in 2025 has created exceptionally high expectations for continued earnings growth, but recent signs of cooling demand, rising costs, and tighter policy conditions have prompted investors to question whether those valuations are still justified.
China bans foreign AI chips from state-funded data centres – report
The Chinese government has issued guidance requiring new data centre projects that have received any state funds to only use domestically-made artificial intelligence chips, Reuters reported, citing two unnamed sources.
In recent weeks, Chinese regulatory authorities have ordered data centres that are less than 30% complete to remove all installed foreign chips, and to cancel any plans to purchase them. Projects that are at a more advanced stage will be decided on a case-by-case basis.
It looks like one of China’s most aggressive steps yet to eliminate foreign technology from its critical infrastructure, and become self-sufficient in AI chips. It comes as trade tensions between Washington and Beijing, have eased, after a high-stakes meeting between the two presidents, Donald Trump and Xi Jinping, in South Korea last week.
China’s access to advanced AI chips such as those made by US chipmaker Nvidia, has been a key source of friction with the US, as the two countries battle for dominance in high-end computing power and artificial intelligence. Other foreign chipmakers that sell data centre chips to China include AMD and Intel.
Trump said on Sunday that Washington will “let them deal with Nvidia but not in terms of the most advanced” chips.
The latest move by Beijing would dash Nvidia’s hopes of regaining Chinese market share, while giving local rivals, including Huawei, another opportunity to secure more chip sales.
It is unclear whether the guidance applies nationwide or only to certain provinces, Reuters said. It covers Nvidia’s H20 chips, the most advanced AI chip the US firm is allowed to sell to China, but also more powerful processors such as the B200 and H200. While the B200 and H200 are barred from being shipped to China by US export controls, they remain widely available in China through grey-market channels.
AI data centre projects in China have drawn over $100bn in state funding since 2021, according to a Reuters review of government tenders. Most data centres in China have received some form of state funding to help with their construction.
Nvidia chief executive Jensen Huang has repeatedly lobbied the Trump administration to allow the sale of more AI chips to China, arguing that keeping its superpower rival’s AI industry dependent on US hardware is good for America’s interests. Its current share of the Chinese AI chip market is zero, compared to 95% in 2022, according to the company.
David Morrison, senior market analyst at Trade Nation, took a look at recent AI investments yesterday.
It looks as if traders are finally booking some profits following the strong gains seen since late April as equities bounced back following the ‘Trump Tariff Temper Tantrum’. All the major US stock indices had been marking time over the past week or so, trading just south of all-time highs hit in late October.
Once again, [on Monday] news of a large investment in artificial general intelligence lifted tech. OpenAI, the privately owned owner of ChatGPT, announced a $38bn investment in Amazon Web Services, giving it access to Nvidia’s graphic processing units for seven years.
But the deal has also raised fresh questions over the circulatory nature of AI investment. Well over $1 trillion has been promised for various AI programmes, and the vast majority of this involves a very small group of tech corporations with OpenAI and Nvidia at the centre of most of it. So far, there has been precious little return on all this funding, but investors expect to reap outsized gains in future years. But some are doubting whether AI can possibly live up to the hype in terms of future returns.
Deutsche Bank: Growing chorus of ‘whether we might be on verge of equity correction’
Jim Reid, analyst at Deutsche Bank, said there is talk of whether we are “on the verge of an equity correction”.
The last 24 hours have brought a clear risk-off move, as concerns over lofty tech valuations have hit investor sentiment.
Markets compounded these losses in the early hours of Asian trading but have been rallying back in the couple of hours prior to going to print with US futures clawing back towards flat with the Kospi rallying back a couple of percentage points from early -5% plus losses.
On Wall Street yesterday, the S&P 500 closed down 1.17%, losing ground because of sharp losses among tech stocks, and there was a big slump for Palantir (-7.94%) after its earnings the previous day.
Reid added:
Whilst the moves were only one day’s selloff, the market narrative saw a discernible shift, with a growing chorus discussing whether we might be on the verge of an equity correction. That speculation has gathered pace over the last month in particular, mainly because the Magnificent 7 has diverged from the rest of the S&P 500, which has revived questions about how concentrated this equity market now is. Indeed, whilst the Mag 7 have been advancing in recent weeks, the equal-weighted S&P 500 actually fell in October for the first time in 6 months.
Yesterday’s decline for Palantir (-7.94%) was seen as emblematic of this shift, particularly given they’d actually raised their revenue outlook the previous day. But given their share price had quadrupled in the last year, that’s set the bar incredibly high for any earnings releases. In fact, the Magnificent 7 (-2.28%) led the declines yesterday, with Nvidia itself down by a larger -3.96% as some of those top-performing stocks came under scrutiny.
Thinktanks urge Rachel Reeves to overhaul ‘broken’ tax system
Thinktanks from across the political spectrum are urging Rachel Reeves to use this month’s budget to overhaul the “broken” tax system, including abolishing stamp duty and merging income tax and national insurance.
The group, which ranges from the rightwing Adam Smith Institute to the leftwing New Economics Foundation, published proposals for sweeping “pro-growth reforms” the chancellor could introduce to “tax all income from work equally”.
A separate report on Wednesday from the National Institute of Economic and Social Research (NIESR) urged Reeves to make “brave choices” and look for an extraordinary £50bn of spending cuts and tax rises to triple the size of her fiscal buffer.
The chancellor left the door open to the first rise in the basic rate of income tax for 50 years in a speech on Tuesday and the thinktank coalition called on her to prioritise reforming the tax system in her 26 November budget, as well as raising additional revenue.
In its report, NIESR argued that Reeves should grasp the nettle at the budget to build up as much as a £30bn buffer against her rules.
The thinktank said that although factors such as stubbornly high inflation and interest rates were expected to ease, Reeves should urgently address public debt levels, including by increasing the basic rate of income tax.
“The trajectory of UK public debt is becoming unsustainable. Five years on from the pandemic, this is the moment to reverse that drift and start bringing debt down,” said David Aikman, director of the NIESR. “Without a credible plan to reduce debt over this parliament, the UK risks locking in a permanently higher – and potentially unstable – debt ratio.”
US supreme court to hear oral arguments on legality of Trump imposing tariffs
Donald Trump’s sweeping tariffs on the world will be scrutinised by the US supreme court today, a crucial legal test of the president’s controversial economic strategy – and his power.
Justices are scheduled to hear oral arguments today on the legality of using emergency powers to impose tariffs on almost every US trading partner.
In a series of executive orders issued earlier this year, Trump cited the International Emergency Economic Powers Act, or IEEPA, a 1977 law which in some circumstances grants the president authority to regulate or prohibit international transactions during a national emergency, as he slapped steep duties on imports into the US.
The supreme court – controlled by a rightwing supermajority that was crafted by Trump – will review whether IEEPA grants the president the authority to levy a tariff, a word not mentioned in the law. Congress is granted sole authority under the constitution to levy taxes. The court has until the end of its term, in July 2026, to issue a ruling on the case.
Lower courts have ruled against Trump’s tariffs, prompting appeals from the Trump administration, setting up this latest test of Trump’s presidential power. The supreme court has largely sided with the administration through its shadow docket to overrule lower courts.
Here’s our full story on M&S:
Profits at Marks & Spencer have more than halved after the retailer suffered a damaging cyber-attack, which is still affecting its struggling clothing and homeware business.
The retailer said underlying profits more than halved to £184.1m in the six months to 27 September from £413.1m a year before, after it had to halt online orders of clothing and homewares for more than six weeks.
The company’s clothing and homeware sales slumped 16.4% in the half year. The retailer said the division had been “slower” to recover from the hack than its food arm.
M&S said that sales of fashion in stores had been “impacted by reduced availability and fewer visits linked to the absence of click and collect”, and warehouse systems were now restored so “both our website and stores are improving availability, and trading is recovering”.
Introduction: China ends tariffs on US imports including farm goods but soy bean levies remain; M&S profits hammered by cyber-attack
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
China will suspend retaliatory tariffs on US imports following last week’s high-stakes meeting of Donald Trump and Xi Jinping. This includes lifting levies on farm goods, Beijing confirmed on Wednesday, but imports of US soybeans will still face a 13% tariff.
The State Council’s tariff commission announced it would remove duties of up to 15% it imposed on certain US agricultural goods from 10 November – while maintaining the 10% levies prompted by Trump’s “Liberation Day” tariffs.
Investors were cheered last week when US and Chinese presidents met in South Korea, but Beijing did not provide details of what had been agreed.
Even Rogers Pay, a director at Beijing-based research firm Trivium China, told Reuters:
Broadly, it’s a great sign that the two sides are making rapid progress in putting the deal into effect. It shows they’re aligned and that the agreement is likely to hold up.
However, Chinese buyers of US soybeans still face 13% tariffs, which traders said makes US shipments too expensive for commercial buyers compared to Brazilian alternatives.
Over here, British retailer Marks & Spencer reported a 55% drop in profits in the past six months, as sales were hit by a damaging cyber-attack in April that forced it to suspend online clothing orders for seven weeks.
The cyber attack also hit food availability at its stores. M&S, one of the biggest names on the UK high street, made an adjusted profit before tax of £184.1m in the six months to 27 September, down from £413.1m a year earlier.
Clothing and homewares sales fell by 16.4%. Food sales rose by 7.8%, better than expected, as M&S said it was “largely recovered” from the effects of the attack.
We are confident we will be recovered and back on track by the financial year end.
In May, the retailer estimated that the cyber attack would cost it £300m in lost operating profit in the year to March 2026, although it hopes to halve that through insurance and cost cuts. Its insurer has paid out £100m. M&S is now aiming to achieve £600m in cost savings this year – £100m more than previously targeted – after it was also hit by a new packaging recycling levy.
Stuart Machin, the chief executive, said:
The retail sector is facing significant headwinds – in the first half, cost increases from new taxes were over £50m – but there is much within our control and accelerating our cost reduction programme will help to mitigate this.
Asian stock markets are mostly down. Japan’s Nikkei fell as much as 7% and closed 2.5% lower (after reaching a record high on Tuesday) and the South Korean Kospi slumped by 2.85%, after earlier losses of 5%. The FTSE 100 index in London is also expected to open lower.
Shares on Wall Street tumbled on Tuesday, when the S&P 500 fell by 1.2% and the tech-heavy Nasdaq lost 2%, on fears that technology stocks had soared too high, with a cooling in the artificial intelligence boom. Last week, US stock indices hit record highs and analysts say that some investors are taking profits, especially in AI-related stocks.
The Agenda
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8.15am-8.55am: Spain, Italy, France, Germany PMI final surveys for October
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9am GMT: UK New car sales for October
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9.05am GMT: Bank of England Khan speech
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9.30am GMT: UK Services and composite PMIs final for October
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10am GMT: Eurozone producer prices for September
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1.15pm GMT: US ADP Employment for October
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3pm GMT: US ISM Services PMI for October
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US Supreme Court to consider legality of Trump tariffs
