A tale of two mandates

• Emerging market and Asia ex-Japan equities which both advanced +3.7% in sterling terms
• Gold and Brent crude which both rose +1.6% and +2.3% respectively in dollar terms
• Sterling as it strengthened a little against the dollar (+0.3%), euro +0.2%) and yen (+0.5%)

• European government bonds which were flat, failing to replicate the modest returns of US and UK equivalents

US jobs data released last week heaped more pressure on the Federal Reserve (Fed) to cut interest rates. As America’s Bureau of Labour Statistics revised down the number of people in work between April 2024 and March 2025 by 911,000, the White House slammed it for incompetency just a month after firing its commissioner, Erika McEntarfer. Compounding this revision, initial jobless claims also rose sharply to 263,000, some 31,000 more than forecast. Although worrisome, the data is unlikely to presage more lay-offs given that corporate profits are generally strong – supporting the trend that for some time employers in the private sector have been holding tight rather than firing staff.

If the jobs side of the Fed’s mandate clearly supports an interest rate cut, it’s currently less clear that the inflation side of it does. US inflation – as measured by the Consumer Prices Index – rose +0.4% in August compared to July to hit an annualised rate of +2.9%. Core CPI (excluding volatile components like food and energy) remained at +0.3% and +3.1% on the same basis. Whilst the Fed may comfort itself that inflation expectations remain anchored, US tariffs make forecasting it harder. Investors may in future demand an ‘inflation uncertainty’ premium if this dents their confidence. But for now, the US bond market is not signaling concern with the US 10-year yield around 4.04%. The bottom line is that slowing growth, a weakening labour market and high inflation add to a stagflationary undertone for the US economy. For the Fed, jobs will likely trump inflation and force policymakers to cut interest rates this week.

News last week that the UK economy delivered 0% growth in July may be slightly misleading. Although the Office for National Statistics (ONS) reported the stagnation followed a 0.4% expansion in June, it intends to focus on growth over a rolling three-month period going forwards. By this measure, in the three months to the end of July the economy reportedly grew by 0.2%. The service sector continues to power growth, while manufacturing continues to drag on it, contracting sharply in July. News of a stagnant July might be a headwind for Chancellor Reeves with the government under ever-increasing pressure to boost economic growth. However, Reeves might be quietly relieved after growth for the first two quarters of the year exceeded expectations. For now, at least, there is little evidence of that momentum is stalling in the second half of the year. The Treasury will clearly hope that pre-Budget uncertainty doesn’t crimp economic activity to the extent that it did last year. But 26 November is far away off for that to happen. 

Credit-rating agency Fitch has downgraded France to A+ after budget woes claimed a fifth prime minister in two years last week and investors fretted about its fiscal deficit. President Macron chose Sébastien Lecornu to succeed François Bayrou who resigned due to a no-confidence vote after a widely unpopular €44bn fiscal squeeze proposal to address France’s deficit. The deficit – at 5.8% last year and the highest of all eurozone countries - was worsened by inaccurate tax revenue forecasts and Fitch projects it will remain above 5% for several years. President Macron has asked Lecornu to hold talks with all political parties in parliament to find a solution on the budget before naming his new cabinet. It is expected that a compromise can be made with the centre-left-wing lawmakers over a new budget proposal. The no-confidence vote sent the French borrowing cost for 10 years above 3.6%, its highest level since the eurozone debt crisis. It has now come back closer to 3.49%.

• ECB holds rates: The European Central Bank kept its deposit rate at 2% for the second consecutive meeting, signalling a likely ‘soft-landing’ as inflation returns to its 2% target, unemployment stays low and growth stabilises 
• Mexico tariffs: Mexico plans a 50% tariff on Chinese and Asian-made cars, under US pressure to curb China’s alleged backdoor access to the American market
• Fed update: A federal judge has ruled Lisa Cook will remain on the Federal Reserve Board while her case proceeds through court. Trump is seeking her removal over alleged false representation on a mortgage agreement
• EU politics: European Commission President Ursula Von de Leyen faces two new no-confidence motions from both the extreme right and radical left, centred on EU trade policy – particularly the recent EU-US trade framework and the EU-Mercosur trade deal
• Oracle shares surge: Shares jumped +36% after Oracle raised deferred revenue forecasts from $99bn to $455bn, benefitting from demand for data centre AI infrastructure, briefly making its founder Larry Ellison the world’s richest person
• Novo Nordisk cuts jobs: The maker of Ozempic and Wegovy weight loss jabs is slimming down – cutting 9,000 jobs after weaker-than-expected sales and rising competition
• Mining merger: Anglo American will merge with Canada’s Teck Resources, creating a $53bn copper mining giant - Anglo Teck
• Klarna IPO: Buy-now-pay-later firm Klarna debuted on the New York Stock Exchange with a $15bn valuation on its IPO; shares rose nearly +15% on its first day
• Apple - new product launches: Apple shares fell -3.2% after unveiling the iPhone 17 lineup, new watches and AirPods, with critics citing incremental updates and concerns around its AI strategy. The launch date is 19 September
• Paramount eye Warner Bros. Discovery: Paramount Skydance are preparing a majority cash takeover bid that sent Warner Bros. shares soaring nearly +29% on Thursday

Disclaimer

Past performance is not a reliable indicator of future returns. Nothing herein should be construed as a recommendation to hold, buy or sell any security or encourage any investment decision. The mention of any particular asset class, sub-asset class or company does not imply that it is held, or may ever be held, in any product or service.