Making sense of this crazy world
I’m back from Spain after a few days golfing. Although it was a good time, I’d have been better off leaving my clubs at home! Thanks to Gus for last week giving us an overview of the main dynamics across markets and economies.
This week we hear that UK business confidence has dived, just as the Labour Party Conference attempted to give hope and optimism in the face of some stark choices around their fiscal responsibility. The UK investment markets were actually heartened though, partly due to Sir Keir Starmer effectively promising not to overspend or spring nasty surprises on the economy.
A significant factor supporting markets this week was the proposed peace deal offered up by Trump. US equities were also boosted after an OpenAI share sale supported sentiment.
Less good news for the economy is the US government shutdown, the first for some seven years, coupled with news that the private sector in the US has shed the most jobs since 2023.
Asset-wise, all the above create an environment of elevated risks and uncertainty, which typically points to investors seeking safety, but currently, the rising tide of AI is carrying most assets higher.
Despite the euphoria for AI, there are other areas of value and opportunity, and we’ll evaluate the prospects for European smaller companies and emerging markets.
This week’s content:
- UK business confidence dives
- UK stocks attract support
- Peace deal for Gaza?
- OpenAI sale boosts markets
- US government shutdown
- US private sector shed most jobs since 2023
- US weakness points to bonds
- Is it time to embrace European smaller companies?
- Are emerging markets the new safer bet?
- Summary
UK business confidence dives
A survey by the Institute of Directors has revealed that its business confidence index has plummeted.
Its confidence index plunged to –74 in September, the lowest since the index began in 2014. Company bosses cite rising costs from wages to energy as a reason for their pessimism. In everyday terms, UK businesses are really beginning to feel the pinch and are worrying about the road ahead.
UK stocks attract support
Yet, despite this corporate gloom, UK stocks continue to shine. Investors seem to be looking past current troubles, buoyed by a few positives.
One positive is the trajectory of interest rates. The Bank of England did not raise rates in its latest meeting, after cutting them in August, keeping the base rate at 4%. With inflation slowly easing (around the mid-3% range, still above the 2% target), there’s growing expectation that the next move will be further rate cuts. Some Bank officials are already arguing there’s no need to be “overly cautious” given signs that UK price pressures should fade. The prospect of cheaper borrowing has helped cheer the stock market.
Continues…
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