Last week US Treasury Secretary Scott Bessent launched a new campaign aimed at further isolating Iran from the global economy. The immediate market reaction was measured, with Brent crude falling approximately 2% last Monday to $92 – it slipped further across the period to around the $88 level. Shipping through the Strait of Hormuz remains constrained, and investors continue to warn that prolonged disruption, and declining oil inventories, could yet push prices back above the $100 mark.
Trade tensions between the US and Canada escalated further last week as Canadian Prime Minister, Mark Carney, warned that the country faced an unprecedented trade challenge after negotiations collapsed. Canada responded to the US’ 50% tariffs on £20bn of Canadian exports with its own measures, ranging from 15% to 50% levies on over 700 US products. This is inclusive of steel, aluminium, dairy goods, seafood and household appliances, and the measures are scheduled to take effect on 8th September.
US Equity Market:
US equities traded within a narrow range last week, as markets continued to navigate the backdrop of strong corporate earnings against geopolitical and interest rate uncertainty. The S&P 500 closed the period to Friday modestly up 0.5%, remaining close to the all-time high recorded at the start of August.
Last week’s main corporate announcement came from the world’s largest company by market capitalisation, Nvidia. The corporate reported record quarterly revenue of $96.2bn in the 3 months to 31st July, more than double that recorded a year prior, and above analyst expectations. The announcement also saw Nvidia forecast annual sales growth of around 70% for the next year, and reveal an agreement with Amazon Web Services to supply a further 2 million Nvidia graphics processing units this quarter. Shares climbed more than 7% in pre-market trading in response.
In one of the largest legal settlements by a US corporate, last week Meta agreed to pay approximately $18bn to settle legal claims relating to the effects of Facebook and Instagram on younger users. Despite this, the 10-year payment plan and the limited impact on future income, led Meta to conclude that they did not expect this to have a material impact on financial results moving forward. In other news, US private equity fundraising continued to recover, as growth-focused funds further benefited from renewed institutional investor demand.
UK Equity Market:
In housing news, the UK proceed with the first £10bn wave of its low-cost housing plan, aimed at constructing new homes for renters. This comes as a welcome project for London homebuyers, given that recent news revealed that they now need an extra £35,000 in deposits, on average, to account for mortgage rate rises.
Data from the Confederation of British Industry revealed that UK retail sales weakened over August, after their strongest performance in 6 months in July. Industry data revealed that automotive output fell in July due to weak exports and shutdowns, causing a decline of 8.1% in output year-over-year. In the UK job market, last week news revealed that 1 in 3 UK employers have cut entry-level jobs due to greater automation and the use of AI. This will be another economic challenge facing the new Chancellor over the coming months.
Ahead of this week’s stock reshuffle, the FTSE100 index closed the week to Friday relatively unchanged off the back of easing oil prices, which caused oil and energy shares to dip, offsetting gains from mining stocks rising earlier in the week. As a reminder, a stock reshuffle is where the stocks that comprise an index are updated at quarter end, to reflect the current largest 100 UK listed companies. Sterling trades at around 1.35 against the US dollar, near its 6-month high, off the back of rate hike expectations.
Inflation, Interest Rates and Bond Markets:
Recently, US Treasury Secretary Scott Bessent announced plans to purchase at least twice the amount of long-dated bonds than previously expected, to alleviate some of the upward pressure on government borrowing costs. In response, Wall Street argues that lower borrowing costs could add to inflationary pressures, at a time where US inflation is at 3.7%, above the Federal Reserve’s 2% target. Federal Reserve Chair Kevin Warsh’s speech at Jackson Hole on Friday highlighted stubborn inflation, which may require potential interest rate hikes.
In the UK, bond yields fell modestly across all maturities, with one-month yields down around 2bps and 30-year yields down around 3bps. Despite declines, yields remain close to recent highs. Ongoing tensions in the Middle East have contributed to steeper energy inflation than previously expected, prompting Ofgem to increase the household energy price cap by 4% from October, and shifting investors inflation and interest rate expectations accordingly.
What’s on the horizon
Investors will stay attentive to geopolitical developments this coming week, with the Middle East and Russia-Ukraine conflicts still key market drivers.
A slew of August macroeconomic data will be coming out as markets roll into September. The US and China will release manufacturing Purchasing Manager Index (PMI) numbers, whilst Germany and the eurozone will release their August Consumer Price Index (CPI) data, providing insight into inflationary pressures across Europe. Canada and New Zealand will be releasing their latest rate decisions, whilst the US will be focussed on employment figures, with August’s nonfarm payrolls, unemployment rate, average hourly earnings and July’s job openings all set for release.
This material has been written on behalf of Cambridge Investments Ltd and is for information purposes only and must not be considered as financial advice. We always recommend you seek financial advice before making any financial decision.
Past performance is not a guide to future performance.
The value of your investments can go down as well as up and you may get back less than you originally invested.
Source of financial market data: MorningstarDirect.