The week that was …
Economic round-up
Warsh updates at Jackson Hole …
The world’s central bankers gathered in the US last week to discuss economic policy – and the probability of a US interest rate rise grew after Federal Reserve chair Kevin Warsh said policymakers may have “work to do” to contain inflationary pressures. “We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed,” he said. “Otherwise, we have work to do.” Read more in ‘In focus’ below and from the Times here
… as Bailey sees few ‘second-round’ inflation effects
Bank of England governor Andrew Bailey meanwhile said he saw little sign that the surge in energy prices was creating serious longer-term inflation pressures in the UK. “So far I think we are seeing quite subdued second-round effects,” he said in a TV interview at the Jackson Hole conference. Read more from Reuters here
Q2 rise in UK business confidence …
Andy Burnham replacing Sir Keir Starmer as UK prime minister appears to have prompted a jump in business confidence over the last quarter. An index of sentiment among business leaders published by Barclays last Thursday rose to 63% in the second quarter of the year, up from 57% in the previous three months. Read more from the Times here
… but US consumer confidence drops again
Americans’ confidence in their economy declined again in August, as the Iranian conflict continued to push US gasoline prices above $4 (£2.96) per gallon. The Conference Board said its consumer confidence index dipped to 89.4 from 90.2 in July – its lowest level in seven months. Read more from the Guardian here
US inflation still elevated
US inflation remains elevated with the monthly PCE (Personal Consumption Expenditures) measure rising 0.2% in July after a 0.1% decline in June. It was up 3.7% year-on-year – down from May’s 4.1% year-on-year increase. After the data was released, Fed funds futures implied a 40% chance of a September rate hike. Read more from Reuters here
Markets round-up
Strong results from Nvidia
Nvidia reported revenue for the quarter to 26 July 2026 of $96.2bn (£71.07bn) – up 18% on the previous quarter and 106% from a year ago. “AI has reached its inflection point,” said Nvidia founder and CEO Jensen Huang. “It is doing useful work. Its tokens are productive and profitable. Now, compute is revenue.” Read more in ‘In focus’ below and from Nvidia here
US dollar gains after Warsh speech
The US dollar saw strong gains following Kevin Warsh’s comments at Jackson Hole. The Fed chair hinted that interest rate hikes may be needed if inflation did not start heading back toward the central bank’s 2% target. The dollar index, which measures the US currency against a basket of currencies, rose 0.59% on Friday – its biggest gain since 17 June. Read more from Reuters here
France overtakes Italy as European weak spot
France is replacing Italy as the focal point for market concerns about European debt sustainability. The French government faces tricky budget negotiations in September, while campaigning is underway for next year’s presidential election where support for far-left and far-right parties is rising. Read more from the FT here
Trump strikes Venezuela oil deal
Donald Trump has said the US has struck a deal to gain majority control of more than 65bn barrels of oil in Venezuela. The US president opted for all capital letters to describe the agreement between US secretary of state Marco Rubio, defence secretary Pete Hegseth and Venezuelan interim president Delcy Rodríguez as “The biggest oil deal in world history!” on the Truth Social platform on Friday night. Read more from the FT here
“Strap in – it looks set to be a wild ride to Christmas.
Selected equity and bond markets: 21/08/26 to 28/08/26
| Market | 21/08/26 (Close) |
28/08/26 (Close) |
Gain/loss |
|---|---|---|---|
| FTSE All-Share | 5833 | 5842 | +0.2% |
| S&P500 | 7674 | 7712 | +0.5% |
| MSCI World | 4970 | 4986 | +0.3% |
| CNBC Magnificent Seven | 434 | 445 | +2.5% |
| US 10-year treasury (yield) | 4.74% | 4.72% | |
| UK 10-year gilt (yield) | 5.06% | 5.07% |
Investment round-up
Model portfolios heavily exposed to US dollar
Defaqto data has revealed the overwhelming majority of UK model portfolios are heavily exposed to movements in the value of the US dollar relative to the pound. More than nine in ten (91.5%) of the 1,350-plus risk-rated model portfolios with US equity allocations Defaqto gathers data on do not hedge their dollar exposure at all.
L&G and WTW launch private credit LTAF
L&G and WTW have teamed up to launch the L&G WTW Private Credit Access LTAF. Having received FCA approval on 26 August, it will sit within L&G’s umbrella fund, the Legal & General ACS LTAF.
Advisers report widespread AI use by clients
Almost two-thirds (63%) of advisers report that clients are independently using AI tools for financial advice, according to research from Wealthtime. The investment platform found only 6% of respondents said they had no reason to believe any clients were using AI for advice.
Aberdeen combines property funds
Aberdeen Investments is seeking approval to combine the Abrdn Real Estate Fund and the Abrdn Real Estate Feeder Fund with the Abrdn Global Real Estate Fund, creating a £700m global hybrid real estate vehicle. The new fund would combine direct property investments with an allocation to global listed real estate shares.
Technology ETFs see outflows
Technology ETFs suffered outflows of £5bn over the first four weeks of August. The sector has seen only three months of outflows since February 2025 and gathered £9.4bn of net inflows in July. On a three-month view, the Technology sector has lost money, falling 0.46% on average, while the IA Global sector was up 2%.
Hallett leaves Canaccord
Richard Hallett, Canaccord’s head of fund management and manager of the Marlborough Multi-Cap Growth strategy, has left the group. Hallett, who has managed the £107m fund since 2005, will be replaced by Eustace Santa Barbara and Will Rosier.
Saba proposes three new directors for BG US Growth
Saba Capital Management, now the largest shareholder in the Baillie Gifford US Growth Trust, has issued a resolution notice proposing three new directors to the company’s board – Jason Chen, Thomas McGlade and James Waterlow. If elected, Saba recommends they offer shareholders an option for a full cash exit at or near net asset value.
… and the week that will be
Eyes on US jobs data …
Focus returns to the health of the US labour market this week, with nonfarm payrolls figures for August due on Friday. These should provide clues on how well employment is holding up and whether high inflation is feeding through into wages, as investors assess the likelihood of a rate increase from the Federal Reserve as early as September. “We expect a modest recovery of perhaps 65,000 in August, but the low-hire, low-fire narrative persists,” observed ING economist James Knightley in a note. “Tariff-related caution and higher borrowing costs are likely to keep that in place for the rest of the year.” Read more from Morningstar here
… and Broadcom results
After a bumper set of numbers from Nvidia, quarterly results from semiconductor company Broadcom could set the tone for markets this week. Last week, the S&P 500 posted a weekly gain, putting the benchmark US index slightly more than 1% away from its 13 August all-time high. Nevertheless, higher bond yields are weighing on investor sentiment. Read more from Reuters here
The week in numbers
Eurozone inflation: Consensus expectations are for the flash August reading to show Eurozone prices rising 3.1% year-on-year and 0.3% month-on-month – up from 2.9% and 0.2% respectively in July. Core inflation is meanwhile expected to rise to 2.6% from 2.5%, year on year.
US business sentiment: Consensus forecasts have the US ISM manufacturing purchasing managers index (PMI) falling to 55 in August from 55.6 in July and the services equivalent down to 53.8 from 54.1.
US employment: Consensus expectations for the August US non-farm payrolls are that 12,000 jobs have been created, up from a loss of 23,000 the previous month. The US unemployment rate is meanwhile expected to rise to 4.2% from 4.1%, and wages to rise 0.2% month-on-month and 3.3% year-on-year, from 0.1% and 3.2% respectively in July.
US jobs data: Consensus forecasts are for the US ADP employment report to show 59,000 were created in August – down from 44,000 the previous month.
China business sentiment: Consensus expectations are that China’s official PMI data will show a recovery in the manufacturing PMI, from 49.2 in July to 49.9 in August, while the non-manufacturing PMI is forecast to rise to 50.4 from 49.
In focus: Back to school
Ahead of what promises to be a busy new ‘term’, last week flashed a series of lights – red, green and amber. Federal Reserve chair Kevin Warsh raised the spectre of an interest-rate rise, AI bellwether Nvidia reported its results and the US renewed its trade war with Canada. As investors return to their desks – wherever those may be – here is a handy checklist of the areas likely to occupy their minds over the final months of 2026.
* US treasuries: It has been a wobbly few weeks for the US treasury market, which has been unsettled by the country’s structural debt tipping over the symbolic $40tn (£30tn) mark and some concerns over Warsh’s commitment to inflation management. Long-dated bond yields have borne the brunt of the weakness.
US treasury secretary Scott Bessent intervened to try and support the market but professional investors remain sceptical this can make a long-term difference. TwentyFour Asset Management portfolio manager Eion Walsh, for example, says: “Bessent is quickly gaining a reputation for intervening in markets.
“While the official reason for the latest change was to improve liquidity – strangely not deemed necessary at the regular quarterly announcement just two weeks earlier – this domestic move appears to point to an attempt to calm nerves as treasury yields moved steadily towards 20-year highs.”
Bessent’s other notable intervention of late has been in the yen market, which may have been an attempt to prevent Japanese policymakers selling US bonds to stabilise their own markets. Paradoxically, the worry is that these various attempts at stabilisation may ultimately be interpreted as panic.
“The timing of the move suggests the Trump administration is feeling the rate pressure – possibly with midterm elections on the horizon,” suggests Walsh. “It may also be because there is no other help at hand: president Trump is doubling down on ‘crushing economic operations’ on Iran, while the latest Federal Open Markets Committee minutes showed many participants believed hikes would be needed if the rate of inflation fails to decline. It is not easy to see what the endgame is for the US administration.”
Having previously resisted offering much in the way of market ‘guidance’, Warsh was more open at last week’s Jackson Hole symposium, saying: “On the price-stability side of our mandate, the numbers are more concerning”. And he went on: “We must be confident underlying inflation is moving to our objective, clearly and at sufficient speed. Otherwise, we have work to do.” He also noted the Federal Reserve had missed its 2% goal for 65 straight months. Markets responded by pushing up expectations of a rate rise at the Fed’s September meeting.
The market will continuously evaluate whether Korean companies are as resilient as they profess to be – something they will need to demonstrate quarter after quarter.”
* AI trade: The past few months have been characterised by increasing nervousness around the AI trade. In particular, the volatility in the memory-heavy Korean market has given investors a white-knuckle ride. The principal worry has not so much been that AI spending is slowing as these businesses may now be at peak earnings and there may be new competition coming into the market from China.
“The volatility experienced by South Korea’s stockmarket recently, with a crash and subsequent recovery, has left investors questioning the long-term viability of its associated companies, and whether they can continue to generate cash for a longer period of time,” says Chetan Sehgal, lead portfolio manager of Templeton Emerging Markets Investment Trust.
“This is especially true for the tech companies that dominate the index. Among other factors, Chinese competition is intensifying and China as a market is developing its own supply chain. The market will continuously evaluate whether Korean companies are as resilient as they profess to be – something they will need to demonstrate quarter after quarter.”
Sehgal believes the “two key markers” here are cash return and sustainability in the face of competition from China and while, for the time being, he remains optimistic businesses can meet the challenge, he warns that investors need to watch global factors, including the cost of money and the viability of financing data-centres.
There are further concerns around spending from hyperscaler businesses and the subsequent impact on their balance sheets – symbolically, at its last set of results, Alphabet’s free cashflow turned negative. The hyperscalers are increasingly turning to the bond market to raise capital for spending on AI Infrastructure. They have also significantly lagged the wider index since the start of this year.
Nvidia, however, has been the exception and the strength of its latest results should provide some reassurance that this part of the AI trade remains robust. The group reported data-centre revenue more than doubling to $89bn – beating consensus estimates of $85bn – and is forecasting revenue growth of 70%. In a market that is increasingly difficult to impress, this grabbed investors’ attention and the shares rose in response.
The Iranian crisis, the pandemic and Russia’s invasion of Ukraine are all symptoms of a world that is deglobalising – and becoming more unstable in the process.”
* Trade wars and supply chains: President Trump’s renewed spat with Canada revived some uncomfortable memories for many governments around the world. It seems the US president has not tired of using tariffs as a tool to achieve political ends even as legal barriers have been erected to prevent him ultimately doing so.
This is bad news for Canada and could encourage Trump to do the same elsewhere. “The US president has resumed his trade war – this time with Canada, which could see $20bn in its exports to the US being taxed at 50% from 8 September,” note analysts at Edmond de Rothschild Asset Management.
“Canada riposted with similar measures. Canada’s aluminium and autos will also see an additional 50% tax and Ottawa replied by doubling levies on various US products to 50%. Although Donald Trump is down to meet Xi Jinping at the beginning of September, he is also considering an additional 7.5% levy on Chinese goods, which are currently taxed at an estimated 26%.”
More broadly, Trojan Fund co-manager Charlotte Yonge says the instability of global supply chains remains a key risk for markets. She points to the Iranian crisis, the pandemic and Russia’s invasion of Ukraine as symptoms of a world that is deglobalising – and becoming more unstable in the process. “Countries are responding by reshoring manufacturing capabilities and securing energy domestically,” she continues. “It spells a rockier time for global prices”.
* ‘Other’: In the mixed bag marked ‘Other’ investors might well put Japan. The weak yen is clearly troubling the US administration and the unwinding of the carry trade as Japanese interest rates rise is one more potential source of destabilisation in markets.
There is also likely to be plenty of political noise over the coming months. The US mid-terms may be less important for the result than for the impact on an insecure and trigger-happy US administration. Meanwhile, campaigning in the French presidential election is already underway and the prospect of a ‘Rassemblement National’ victory could prove unsettling for European powers. Strap in – it looks set to be a wild ride to Christmas.
Read more on this from Jupiter here and from the WEF here
In focus: Taxing times
The G7 grouping of the world’s richest nations have racked up an additional $16bn (£11.8bn) of financing costs due to the rise in bond yields since the start or the Iran war in February, the Financial Times reports. At $10.6bn, the US may be paying the lion’s share but the UK is also a casualty. Last week official figures showed the government borrowed more than expected in July, despite a record month for income tax receipts.
This creates a dilemma for new prime minister Andy Burnham and his chancellor John Healey ahead of the upcoming UK Budget on 28 October. Higher borrowing costs have eroded the £22bn fiscal cushion built up by Healey’s predecessor Rachel Reeves to about £15bn – and he also needs to find £4.7bn to cover a shortfall in the defence investment plan.
This has prompted a renewed chorus of questions on where the Labour administration will hike taxes to restore balance to the public finances. The assumption is that the government is not able to cut costs and cannot raise borrowing – so it must be tax rises. Burnham has said he “”won’t be unrealistic” about the “challenging” state of public finances – a line widely taken as meaning taxes would have to rise.
Capital gains tax has been the main subject of speculation but there are real doubts as to whether lifting the rate of capital gains tax would actually raise any money. HMRC research suggests a 10-percentage-point increase in the higher rate of capital gains tax could reduce revenues by about £3.6bn. For his part, economist Lord Jim O’Neill – a former adviser to Burnham – has said increasing the tax would be “stupid” as business owners would just defer selling their companies or move their money abroad to avoid the tax.
Pensions are another possible target – though pension tax credits have survived previous tax raids. One option would be to lift the exemption on National Insurance contributions for anyone over state pension age. At the moment, anyone earning a salary over this age is exempt from paying it. Advocates of the idea suggest this could raise £2bn, while also addressing mounting intergenerational unfairness – though it could equally provide a disincentive to keep working beyond pension age.
Either way, the ‘low-hanging fruit’ on tax rises has already been plucked and chancellor Healey is constrained by the Labour manifesto promise not to raise the major taxes. Could this finally be the moment Labour concludes the only logical response is to cut welfare spending?
Read more on this from the Times and here
