Markets for the most part had a quiet week despite President Trump’s best efforts. Following their gains of late, global equities were little changed in both local currency and sterling terms with some reversal of recent regional trends. UK equities, which have lagged over recent weeks, fared best with a 0.7% gain. By contrast, emerging markets, which have been outperforming of late, drew up the rear and lost 0.5%.
Bonds were also becalmed, with yields edging up slightly, and saw slight losses. There was rather more action on the commodity front. The Brent crude oil price rose 4.2% to just under $70/bbl although remains subdued in the grand scheme of things. Gold, meanwhile, continued its stellar run, rising 2.8% over the week and breaking above $3800/oz this morning.
Gold is the undisputed winner from the policy chaos in the US. Despite the US Administration pumping the merits of cryptocurrencies for all their worth (or lack of it), the fact is that the gold price is now up as much as 44% in dollar terms this year, more than double the 16% gain of bitcoin and 20% rise in ethereum.
The old economy has also trumped the new economy this year within the equity market. The basic materials sector – which has been written off as a dinosaur on the verge of extinction too many times – has had a good year. This will no doubt come as a surprise – given everything is supposed to be about AI these days – but it has even outperformed the Magnificent Seven by 8% this year with a 26% gain.
Just for a change, Trump was barely out of the headlines all week. His apparent U-turn on Ukraine, with his comment that it could potentially regain all its territory, caused some head-scratching. As for his remark that Europe was going to hell, this was arguably rather less of a surprise given his long-standing hostility to the region. His decision to prosecute the former director of the FBI also has history.
Rather more surprising – though maybe it shouldn’t have been – was Trump’s endorsement of a contentious link between paracetamol and autism. Trump also announced 100% tariffs on patented pharmaceuticals, 25% tariffs on trucks and even 50% tariffs on bathroom vanities of all things, starting on 1 October. He had been threatening substantial drug tariffs for a while but the timing was a bit of a surprise. There were as usual exemptions for companies building manufacturing facilities in the US.
Finally, there was the announcement of a $20bn US package to support fellow libertarian President Milei in his attempts to turn around the Argentinian economy. These have recently come under pressure from the markets.
Meanwhile, Fed Chair Powell followed up last week’s 0.25% rate cut with additional comments highlighting the tensions underlying its policy decisions at the moment – namely, near-term risks to inflation being tilted to the upside while risks to employment are tilted to the downside. Although markets still believe another rate cut next month is a racing certainty, they are now less certain this will be followed by one in December.
Constant and inconsistent data revisions don’t make the Fed’s task any easier. Following the recent unexpectedly large downward revision to employment, second quarter GDP growth has now been revised up significantly to an annualised 3.8%. More importantly, the underlying pace of activity (after stripping out the distortions caused by tariffs) was not as weak as first reported and revised up to 2.3% due to stronger consumer spending.
As for the Fed’s favoured measure of core inflation, this came in as expected and was unchanged in September at 2.9%.
Just as Trump is never out of the headlines, so too AI. Nvidia announced it is to invest a mere $100bn in OpenAI (the maker of ChatGPT), confirming that the AI merry-go-round remains in full swing, at least for the time being. Nvidia’s stock price ended the week up a token 1% while the remainder of the Magnificent Seven continued their volatile path with weekly moves ranging from -5% to +4%.
Here in the UK, the only real macro news was that business confidence fell back in September from its surprisingly high level over the summer. But all the attention was on Andy Burnham’s apparent and seemingly premature bid for the Labour Party leadership. His mooted spending spree and comment that Labour should not be in hock to the bond markets brought back memories of Liz Truss and were swiftly denounced by the PM.
This week, the Labour Party Conference will clearly be centre stage for UK investors with all eyes on whether Starmer can find some badly needed inspiration to inspire both his rebellious MPs and a disillusioned and equally rebellious electorate.
For markets more generally, however, the attention will be on the US. A government shut-down is looming on Wednesday, if Congress takes no action to avert it, and could last at least a few days. Payroll numbers are also due for release on Friday – if the government is functioning.
Rupert Thompson – Chief Economist