Interest rates were the focus of the week, with central banks from the US, UK and Canada all meeting to set monetary policy.
We will start with the US, where the Fed cut interest rates by 0.25%, marking the first rate cut of 2025. While the cut was expected and priced into markets, the subsequent press conference from Jerome Powell was the focus. Fed Chair Powell acknowledged that there were upside risks to inflation (due to tariffs) but downside risks to labour markets, with recent data clearly highlighting a softening in labour conditions. He went on to describe the lowering of rates as a “risk management cut”. US equity markets have reacted favourably to the cut, with the interest rate sensitive small cap index leading the way, rising marginally on Wednesday before gaining over 2.5% on Thursday.
There was excitement in the semiconductor industry as it was revealed that Nvidia has taken a $5bn stake (circa 4%) in Intel. Intel will now design and manufacture custom x86 CPUs for Nvidia’s AI platform. The announcement sent Intel’s share price soaring, up over 20% on the news. The news didn’t just boost Intel, with companies in the semiconductor supply chain also benefiting; ASML has advanced 13% this week on the back of the Intel-Nvidia partnership.
Alphabet (Google) joined the $3 trillion club this week, becoming the fourth company to reach the milestone. Shares in the search engine giant rose by 4% on Monday, buoyed by a favourable ruling in its antitrust case, with penalties proving lighter than expected. At a high-profile dinner attended by US President Donald Trump and fellow tech leaders, CEO Sundar Pichai announced that the company would invest $250 billion in the United States over the next two years.
The Canadian central bank met on Wednesday and, like the US, reduced interest rates by 0.25% (to 2.5%). This was the first cut since March 2025 and is in response to weakening economic data, with Canadian unemployment at 7.1% and the economy contracting by 1.6% in Q2.
Here in the UK, inflation data was released the day prior to the Bank of England’s (BoE) meeting. Headline inflation came in as expected at 3.8%, nearly double the BoE’s target. Core and services inflation slowed from July’s figure, although we saw an acceleration in food inflation. The data put the BoE in a sticky situation, with the bank reluctant to cut rates with such elevated inflation, even with signs of a slowing economy. As anticipated, interest rates were held steady at 4% on Thursday. The next meeting will be held in early November, three weeks before the budget. With so much uncertainty surrounding the budget, it is possible that the BoE will delay any further cuts until December, or even out into 2026.
It was a mixed week for Sterling, which rose above £1.36 versus the US Dollar, before falling back below £1.35 by Friday. With the US Fed now on an easing path, potentially cutting a further two times in 2025, we may see further US Dollar weakness against a basket of global currencies. A weakening dollar can be positive for risk assets, in particular emerging markets, and we have seen this play out in 2025.
UK retail sales were released this morning and increased by 0.5% month-on-month, above expectations. Despite a slowing labour market, UK household’s have high savings rates, although this hasn’t transpired into elevated spending or higher growth for the economy. The dry powder of the consumer balance sheet is something the Chancellor would love to unlock. As consumers feel more confident, they will likely increase spending and decrease saving.
After a nine-month pause, this week saw the US return to cutting interest rates, with further reductions priced in for 2025. Historically falling interest rates, without a recession, has been a big positive for risk assets and we have seen equities advance this week. As we head into the final quarter of the year, we will start to feel the true impact of Trump’s tariffs and see how it is impacting inflation, hiring, company margins and profitability.
Andy Triggs, Head of Investments
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