‘Up, Up and Away, in My Beautiful …’

Record after record is being broken by the American stock markets as the Balloon gets larger. The latest party blowing warm air into the market is the Federal Reserve which decided to cut interest rates for the first time this year.

Since there has been a material negative change in US job creation during the last quarter and the Trump tariffs have not made the impact on inflation as expected, the Fed Committee felt they should pivot towards a more accommodative monetary stance (i.e. even more rate cuts to come before the end of the year).

The result is that the broad US equity market is up 13% year to date whilst others such as Europe are lagging with just a 9% move. Nonetheless, the positivity is not all consensual with the US Treasury market showing caution as longer dated yields rise in the wake of the cut. The rationale and logical fixed interest investor still fear inflationary pressures from US tariffs and its newfound isolationism.

For a long-time we have suggested investors should hold precious metals as a hedge to record equity prices given the ‘stickiness’ of inflation amid very tepid economic growth trends. Gold and silver are up over 41% and 47% respectively since the start of the year. Momentum is likely to carry these metal prices even higher.

Closer to home, how different things are. The UK Monetary Policy Committee decided to keep interest rates unchanged in a 7-2 vote. They also announced that balance sheet holdings (government gilts that they bought in the covid crisis), would shrink by £70Bn in the year to October 2026. This compares with a previous rate of £100Bn.

Markets had discounted these actions and investors are thinking no UK rate cuts until the first quarter of 2026. The high inflation rate and the key Autumn statement from the Chancellor in late November is keeping the Committee on a hold basis.

In corporate news, Nvidia (the artificial intelligence chip maker) shocked the market by announcing a $5Bn investment in Intel which saw the latter shares jump more than 20%. A few days later, Nvidia told us that they will also be investing up to $100Bn in a partnership with Open AI to accelerate infrastructure and the build out of data centres for artificial intelligence.

This follows hard on the heels of the US government decision taking a 10% stake in Intel, to underscore the administration’s desire to facilitate and accelerate US based semiconductor innovation. It appears a simple political decision from Nvidia in the wake of the need to reduce US reliance on Asian chip manufacturers.

There are events this week to keep the market on their toes. Importantly, we have the US Central Bank’s preferred inflation measure later this week. No change is factored in as the number is likely to match the previous year on year figure of 2.9%.

Purchasing Manager Surveys are released this week. Economists will be looking carefully at the employment and price components of the data, to determine where the Federal Open Market Committee may sit regarding their dual mandate of price stability and stable and full employment.

Attention will also focus on the newly Trump appointed Federal Governor, Stephen Miran who voted for a full half point cut in interest rates last week. He sees things quite differently to the rest of the Committee, but we will also be hearing from many of them this week to counterbalance Miran’s extremely dovish sentiments.

(Cover Image Source: Aaron Burden)