Europe open: Shares slump on AI valuation, rate cut jitters

(Sharecast News) - European shares opened sharply lower on Friday after a tough Wall Street session overnight as worries over AI stock valuations and a lack of clear economic data due to the US government shutdown hit hopes of an interest rate cut next month. The pan-regional Stoxx 600 index was down 0.91% to 575.4 at 0817 GMT having hit an intra-day high on Thursday. Germany's DAX fell 0.46% while Britain's FTSE 100 retreated from its march on the 10,000 point barrier, posting a 1% decline in early trade on rumours that the government was ditching plans to raise income tax in its budget later this month.

"US stocks endured a bruising session with emerging signs that the investor narrative is changing, as opposed to any clear deterioration in fundamentals," said Interactive Investor head of markets.

"Two of the major drivers for this year's rally have been a renewed appetite for the AI trade and anticipation of interest rate cuts. However, of late investors have been shuffling uncomfortably in their seats with AI spending going into overdrive, the success of which will not become apparent for some time, and the stretched valuations which have resulted from the relentless buying interest."

"At the same time, concerns increased that despite the government shutdown having ended, the result may be that the lack of economic data which has left the Federal Reserve dealing blind may not reappear before its next meeting in December."

"As such, investors considered that the Fed may therefore decide to play safe and stay put on interest rates until full visibility is restored."

Market bets on a cut in December have slid from 95% to just over 50%.

In equity news, Bechtle shares surged as the German IT provider posted a return to growth.

Reporting by Frank Prenesti for Sharecast.com