The froth is off the cappuccino in the Square Mile this morning. After a fleeting respite, equity markets are once again gripped by a bout of nerves, this time centred on the technology sector. The FTSE 100 opened sharply lower, tracking a sell-off in New York where the Nasdaq Composite suffered its worst session in weeks.
The culprit? A fresh wave of profit warnings from American tech giants, coupled with fears that the artificial intelligence boom may be running ahead of itself. The Bank of England, never one to miss a party turning sour, has placed its market monitoring unit on standby.
Governor Andrew Bailey's team will be watching for signs of contagion into UK gilt yields and sterling, though officially Threadneedle Street insists this is a 'risk event' rather than a full-blown crisis. For those of us with longer memories, the pattern is all too familiar: a spike in volatility, a flight to safe havens, and then the slow, grinding realisation that central banks cannot bail out every asset class. The yield on the 10-year gilt edged lower as investors sought shelter, but the real action is in the currency markets.
Sterling has taken a hit, sliding a cent against the dollar as capital begins its predictable dance towards the exits. The Treasury will be watching nervously; a weaker pound imports inflation, and inflation is the one thing this government cannot afford. The question now is whether this is a mere 'tech wreck' or the start of something broader.
The Bank of England's Financial Policy Committee will be dusting off its stress tests, but the honest answer is that no one knows. Markets are pricing in a higher probability of a rate cut next month, which would be a double-edged sword: good for growth, bad for the already embattled pound. For the retail investor, the advice is the same as it always was: diversify, don't panic, and remember that the market's favourite sport is taking money from the impatient.
But for the City's institutional players, the mood is distinctly more sombre. The era of easy money is over, and the hangover is just beginning.
