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Andrew Gillham of Team Asset Management offers this week’s market review
STOCK markets in London, New York and Tokyo climbed to record highs, propelled by more encouraging inflation reports and progress in US-China trade talks ahead of the Trump-Xi summit in South Korea tomorrow. The FTSE 100, S&P 500 and Nikkei indices rose 2.8%, 2.1% and 2.7% respectively on the week.
US Treasury secretary Scott Bessent told reporters late on Sunday that a “very positive” framework had been agreed in advance of the first summit between Trump and Xi since 2019. Following two days of talks on the sidelines of the ASEAN meeting in Kuala Lumpur, trade negotiators from the US and China reached several agreements, including a deferral on China’s rare earth minerals controls, a deal on TikTok’s US operations, fentanyl, trade in agricultural products and shipping fees.
Before arriving in South Korea, President Trump met Sanae Takaichi, Japan’s newly appointed first female prime minister. The US president hailed the “great friendship” between the two countries, and the two leaders discussed a closer defence alliance and Japan’s $550 billion of investments into the US, a condition to reduce tariffs on Japanese exports from 25% to 15%. Takaichi also presented Trump with a golf bag and putter that belonged to her mentor, the late prime minister Shinzo Abe.
While trade barriers were coming down in Asia, Canada was hit with an additional 10% levy on its exports to the US in retaliation for the province of Ontario running a television advertising campaign which featured clips of Ronald Reagan’s 1987 radio address warning of the long-term economic perils of tariffs.
Better-than-expected inflation reports from both sides of the Atlantic also provided some tailwinds for markets. In the UK it was revealed that headline annual consumer price inflation had held steady at 3.8% in September for a third successive month, as higher transport petrol prices and airfares were offset by lower food bills and live music prices.
Although inflation remains well above the Bank of England’s 2% target, the probability of an interest-rate cut in December increased to 65% according to money markets.
In the US, inflation rose less than forecast to 3.0%, paving the way for the Federal Reserve to cut interest rates again this evening, despite concerns that tariffs will feed through to higher prices further down the road.
It was another busy week for third-quarter corporate earnings reports with some mixed fortunes.
Shares in NatWest jumped 5% to a 15-year high on Friday after it reported its highest quarterly profits since 2008. The Edinburgh-based lender’s operating profit rose to £2.2 billion, 30% higher than the same period last year, underpinned by strong mortgage and corporate lending. Its net interest margin, the difference between what it pays for deposits and charges for loans, increased to 2.37%.
Tesla shares initially fell after it revealed that its profits had fallen by more than 37% year-on-year to $1.4 billion despite higher sales. The company attributed the declines to increased costs from tariffs, the loss of revenue from carbon credits and higher research and development expenditure in areas such as AI and robotics. It has also lost market share to lower-cost Chinese competitors, including BYD and Geely.
The earnings report comes ahead of Tesla’s annual meeting on 6 November at which shareholders will vote on a proposed $1 trillion share package for Elon Musk.
The board is seeking to award Musk up to 12% of the company’s shares over the next decade if he can hit a series of targets, such as increasing Tesla’s market valuation to $8.5 trillion, from $1.5 trillion today, and reaching ambitious milestones in autonomous driving and robotics. Tesla’s chair Robyn Denholm warned shareholders on Monday that Musk could leave the company if the proposal is not approved.
In commodity markets, Brent Crude rose more than 7% to $65 a barrel after the US hit Russia’s energy sector with more sanctions after efforts to negotiate a peace deal in Ukraine with Vladimir Putin stalled. It targeted Rosneft and Lukoil, which account for more than half of Russia’s daily exports of 4.5 million barrels, mostly to China and India. In contrast, prices of precious metals, such as gold and silver, retreated from all-time highs as progress in US-China trade talks reduced safe-haven demand.
A blockbuster week lies ahead for corporate earnings, headlined by tech giants Alphabet (Google), Facebook’s parent Meta Platforms and Microsoft this evening, followed by Amazon and Apple on Thursday. Investors will be looking for further guidance on their outlooks for AI and reassurances that the hundred of billions of dollars of investment into AI infrastructure will be rewarded. The five companies combined account for more than a quarter of the valuation of the S&P 500 index.
