Jenson Holmes from Titan Wealth offers this week’s round-up of global markets
MARKETS were driven this week by a combination of political developments in the UK, corporate earnings and geopolitical tensions once more.
In the UK, new Prime Minister Andy Burnham announced a significant cabinet reshuffle, appointing former Defence Secretary John Healey as Chancellor. The move was viewed positively by defence-related companies, given Healey’s long-standing support for increased military spending and his previous calls for defence expenditure to reach 3% of GDP. Investors will be watching closely to see whether the new government adopts a more ambitious defence spending agenda, which could provide a further tailwind for the sector.
The new government also unveiled an £850 million package aimed at reducing household energy bills this winter through a cut in VAT on electricity from 5% to 0%. The measure is expected to lower annual electricity bills by around £45 for a typical household and provide modest support to consumer spending while slightly reducing near-term inflation pressures.
Encouragingly, UK inflation continued to move in the right direction, with CPI falling from 2.8% to 2.6%, marking a third consecutive downside surprise. Services inflation also continued to ease, suggesting underlying price pressures are gradually moderating. While inflation is expected to temporarily rise back towards 3% following recent increases in energy prices linked to the Middle East conflict, economists generally expect underlying inflation trends to continue improving over the medium term.
In the US, trade policy returned to the spotlight as US President Donald Trump announced a new round of tariffs. A 50% tariff will be imposed on a range of Canadian goods, while additional tariffs of between 10% and 12.5% will apply to imports from 60 trading partners, including China, Japan, India, the EU and UK. The measures have increased concerns about global trade flows and economic growth, although markets have, so far, remained relatively resilient.
Geopolitical tensions in the Middle East intensified further during the week, helping push Brent crude oil above $100 per barrel for the first time since May. Concerns have grown over potential disruptions to global energy supplies following attacks on shipping in the Red Sea and increasingly aggressive rhetoric between the US and Iran. Higher oil prices could create renewed inflationary pressures globally if sustained.
Now attention is turning to the US earnings season, where analysts are warning of heightened market volatility.
Large share price movements following results from major technology companies have highlighted investor sensitivity to earnings surprises, suggesting markets could remain volatile as more companies report over the coming weeks.
Having said that, about 85% of the major US market index constituents that have reported so far have exceeded market expectations – the highest proportion in five years. In Europe, earnings are also coming in strong and largely beating consensus expectations.
