Jenson Holmes from Titan Wealth, offers this week’s round-up of global markets

GLOBAL markets ended last week on a positive footing, with major US equity indices continuing to push higher despite some profit-taking in parts of the technology sector.

Strong economic data and resilient corporate earnings have helped support investor sentiment, while concerns over the sustainability of AI-related capital expenditure have weighed selectively on semiconductor stocks, including in emerging markets. European markets were mixed, with increasing political issues and popular unrest apparent across the continent. Government bond yields fell modestly after their recent sharp rise, providing some relief for fixed-income investors.

In the US, inflation measures, including consumer prices (CPI) and producer prices (PPI), came in modestly stronger than expected and the strength was broad-based, rather than due to any obvious temporary factors. Core services showed strength led by hospital services and recreation, while core consumption goods prices also exceeded expectations.

Despite this, a number of Federal Reserve officials, including chair Kevin Warsh, struck a relatively cautious tone on the need for further interest-rate increases, and market expectations of a rate rise this month have weakened materially. We continue to believe that investors may be overestimating how many interest-rate rises will be needed over the next 12 months, with markets currently pricing in three increases.

In the UK, economic growth was stronger than economists had expected in August, leaving Q3 growth on track for 0.7% compared with the previous quarter, nearly double the Bank of England’s (BoE) estimate of how quickly the economy can grow without creating inflationary pressures. Much of this improvement appears to be driven by the rapid expansion of technology-related industries, particularly computer programming, information services and other knowledge-based sectors. Increased activity in professional services, including legal, accountancy and scientific research businesses, has also contributed significantly to growth. While these areas have been performing strongly, much of the wider economy remains relatively subdued, meaning the headline growth figures are being driven by a handful of high-performing sectors rather than broad-based economic strength.

UK wage and labour-market data also look too firm for the BoE’s Monetary Policy Committee (MPC) to ignore. A 4.8% Real Living Wage hike suggests that wage growth will remain buoyant despite a softer labour market, while inflation is expected to rise to 3.4% in September and could exceed 4% over the coming months. It is likely that the MPC will have to raise rates later this year and perhaps early next year, although similarly to the US, we do not believe that UK rates will increase four times over the next year as currently priced into markets. The UK economy is not strong enough to withstand this, and inflationary pressures should ease next year, although this is partly dependent on energy prices and sterling.

Chancellor John Healey is set to hike taxes on banks in his upcoming Budget, according to the Guardian. This comes after he told an audience in Bangkok that banks were a “jewel” in the crown of the British economy. The paper understands that Healey is minded to increase the surcharge banks pay on their profits, from the current 3% rate to 8%, which would reverse the cut made by Jeremy Hunt. This highlights the fiscal pressure the government is under to raise revenue and improve the public finances.