A Bank of America survey has emerged showing that the average cash holdings of investment funds are at their lowest ever levels, highlighting fund managers’ optimism about the current market environment. This comes despite recent concerns about a potential AI bubble and unsustainably high valuations. Warren Buffett’s Berkshire Hathaway is a notable exception to this trend; the legendary investor’s company is currently sitting on its largest ever pile of cash.
The price of oil settled below $60 a barrel for the first time in almost five years at the beginning of last week. Following rumours of progress on Ukraine peace talks, traders are pricing in easing of logistical distortions that have been caused by sanctions on Russian oil exports as a result of the war in Ukraine.
US Equity Market:
Investors have sent shares in the database company Oracle spiralling downwards over the past few months. Fuel was added to the fire last Wednesday as the company lost a key backer for one of its large data centre projects. Its shares were down over 5% on the day and are now down almost 46% since their recent peak in September. This negative sentiment flowed into other big tech stocks, with Nvidia, Alphabet and Broadcom down 3.8%, 3.1% and 4.5% respectively on the day.
Concerns around Oracle’s level of AI-related debt have increased recently; investors have sent the price of credit default swaps – which protect investors against credit losses – on the company near to their highest ever level.
As of Friday’s close, the S&P 500 and NASDAQ were up 0.13% and 0.60% over the week, respectively.
UK Equity Market:
Property prices in London fell at the fastest pace in 2 years in the year to October. The fall has been partially attributed to owners of expensive homes looking to sell in the run-up to the Budget, amongst speculation that these properties would be hit with additional taxes.
In equity markets, last week the FTSE 100 was up 2.58% at Friday’s close, helped by the interest rate cut on Thursday and strong profits from retailers.
Inflation, Interest Rates and Bond Markets:
UK inflation came in well below expectations at 3.2% for November. The figure, which was forecast to be 3.5%, is the lowest reading since March and strengthened the case for an interest rate cut from the Bank of England. As expected, the Monetary Policy Committee voted to lower the benchmark rate from 4% to 3.75% at the meeting last Thursday, marking the fourth and final cut of the year.
A similar situation in the US emerged last Thursday; the November CPI inflation figure came in lower than expected, boosting the case for the Federal Reserve to continue their rate-cutting cycle into 2026. The 2.7% figure was well below the 3.1% that economists expected over the period and provided a much-needed insight into the health of the world’s largest economy, after a prolonged period of data blackouts caused by the government shutdown.
JPMorgan Chase, the world’s largest investment bank, has withdrawn almost $350bn of cash from the Federal Reserve in favour of US treasuries. This shows the bank’s view that interest rates are going to come down further in 2026, with treasuries offering a more attractive investment.
The Bank of Japan (BoJ) raised interest rates to a 30-year high of 0.75% at its meeting last Friday. Japan has historically had very low interest rates which has caused many investors to borrow their currency to fund investments elsewhere – a strategy known as the carry trade. When rates are raised unexpectedly, or by more than anticipated, there can be implications across global markets as investors ‘unwind’ the trade. This was seen back in August 2024 when the BoJ unexpectedly raised interest rates, sending the Nikkei 225 index down 12% and the S&P 500 down 3% in a single day.
What’s on the horizon
Third quarter GDP figures for the UK were released this morning. Seen as the primary measure of UK economic activity, investors and policy makers will have been closely watching this to see how it compared to expectations. A lower-than-expected reading indicates a slowing economy and could increase the probability of further interest rate cuts in 2026. A preliminary third quarter GDP figure for the US is set to be released tomorrow.
It’s due to be a very quiet couple of weeks on the macro front, as several major markets pause for the Christmas holiday and New Year.
The Cambridge Team
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Source of financial market data: MorningstarDirect.