​​​Recovery takes hold across major indices

​The panic that gripped markets on Thursday has given way to a more measured response, with European equities clawing back earlier losses. The FTSE 100 turned positive by mid-morning, up 0.1% after opening lower, while the broader Stoxx 600 gained 0.2%.

​United States (US) futures also reversed course, with S&P 500 contracts rising 0.4% despite another brutal session on Wall Street overnight. The Nasdaq 100 had fallen 1.4% in its longest losing streak since early January, dragged down by mounting concerns over artificial intelligence (AI) disruption.

​This reversal serves as a reminder that extrapolating market moves beyond a few hours remains a dangerous game. What looked like capitulation at the open turned into recovery by mid-morning, as buyers stepped in to take advantage of lower prices.

​The stabilisation suggests investors are beginning to separate genuine threats from indiscriminate selling. While concerns about AI disruption remain valid, particularly for certain software and data companies, the blanket nature of Thursday's selloff appears to have been overdone.

​Bank of England rate cut bets support UK assets

​UK bond markets are pricing in an increasingly dovish path from the Bank of England (BoE), following Thursday's meeting which saw three policymakers vote for an immediate rate cut. Two-year gilt yields fell another four basis points, taking them to their lowest level in more than three weeks.

​The market is now pricing in a 68% chance of a rate cut at next month's meeting, a dramatic shift from pre-meeting expectations which hadn't seen such a move until July. By April, a quarter-point reduction is almost fully priced in.

​Traders are now betting on about 46 basis points of cuts this year, up from 36 basis points before Thursday's announcement. An 88% probability is now assigned to a second cut by year-end, reflecting confidence that tamed inflation will allow faster monetary easing.

​This dovish repricing has provided support for UK assets, with the British pound holding firm above $1.35 despite the rate cut expectations. For traders using spread betting or CFD trading to position on UK markets, the BoE's shift represents a significant change in the trading environment.

​Software stocks bear brunt of AI disruption fears

​The technology sector's troubles deepened with further pressure on UK-listed software and data companies. Anthropic's latest release, a financial research model called Claude Opus 4.6, has intensified concerns about AI's impact on traditional business models.

​Shares in Relx dropped more than 4%, while accounting software maker Sage fell 3.6% and London Stock Exchange Group (LSEG) declined 2.3%. The FTSE 350 Software and Computer Services index is on track for its worst weekly drop since the early days of the pandemic.

​Investment firm HgCapital, caught in the selloff due to its software holdings, pushed back against what it called "indiscriminate negative sentiment". The firm argued that little distinction was being made between companies with genuine vulnerabilities and those likely to benefit from AI adoption.

​Some analysts agree that the selling has been excessive, noting that many impacted companies will likely benefit from AI rather than being disrupted by it. However, profit margins for European software firms stand at roughly double the regional average, leaving them exposed to competitive pressures.

​Commodity weakness weighs on mining sector

​Mining stocks extended their decline as weakness pervaded both base and precious metals markets. Anglo American, Antofagasta and Endeavour all fell sharply, with the sector contributing to what could be the FTSE 100's worst two-day drop since November.

​Copper is heading for its worst weekly decline since April, as the speculative frenzy that drove it to new highs evaporates. Stockpiles at warehouses monitored by London, Shanghai and New York exchanges have reached their highest levels since 2003.

​While long-term demand prospects remain strong due to copper's role in AI infrastructure and green energy, the metal has run well ahead of short-term fundamentals. Iron ore has also fallen below $100 per tonne on weaker demand from China ahead of the Lunar New Year.

​The sector faced additional uncertainty after Rio Tinto and Glencore walked away from merger talks. The collapse of what would have been the world's largest mining company came after the pair failed to agree on valuation, with Glencore's demand for 40% of the combined entity proving the sticking point.

​Oil gains on geopolitical developments

​Oil prices are climbing as traders focus on diplomatic talks between Iran and the United States taking place in Geneva. Brent crude oil rose around 1% to just above $68 per barrel, while West Texas Intermediate (WTI) followed suit with similar gains.

​Iran has signalled that negotiations won't lead to a quick resolution, describing the talks as potentially the first stage of a longer diplomatic process. The discussions are centred on "broad topics" rather than details, with the aim of clarifying a roadmap for future talks.

​For commodity trading enthusiasts, the geopolitical backdrop continues to provide support at current levels. While immediate breakthroughs seem unlikely, the mere fact of engagement between Washington and Tehran reduces the risk of near-term supply disruptions.

​Energy stocks provided one of the few bright spots in today's session, benefiting from the uptick in crude prices. The sector's traditionally defensive characteristics also made it attractive as investors rotated away from growth-oriented technology names.

​Housing market shows regional divergence

​Halifax reported that UK house prices rose 0.7% in January, recovering from December's 0.5% decline and pushing the average property price above £300,000 for the first time. Annual growth accelerated to 1.0% from 0.4% in the year to December.

​Regional differences are becoming more pronounced, with Northern Ireland leading at 5.9% annual growth, followed by Scotland and Wales. In England, the North West and North East saw growth of 2.1% and 1.2% respectively, while southern regions struggled.

​London house prices fell 1.3% over the year to January, to an average of £538,600, though this was less severe than the 1.6% declines seen in both the South East and South West. The capital appears to be holding up better than other southern regions.

​Halifax maintained its forecast for house prices to rise between 1% and 3% this year, supported by wage growth outpacing property price inflation since late 2022.