Monday Espresso Podcast - 21st July 2025

[00:00:05] Nathan Sweeney: Good morning everybody. It is Monday the 21st of July, and today I'm joined by Sarah Todino, assistant portfolio manager. Good morning, Sarah.

[00:00:13] Sarah Todino: Good morning, Nathan. Good to be here.

[00:00:15] Nathan Sweeney: So let's start off with a quick recap of how markets were performing last week. So if we look at the S&P, it was up just over half a percent.

[00:00:22] Nathan Sweeney: That takes year to date gains to around 7%. So we did have a rocky start for US equities, but you know, definitely beginning to shine. If we look at the FTSE, we saw gains of roughly about 1% last week, and again, year today, we're up between, say, 9-10% for the year. So some healthy returns coming from UK equities, but it was really European equities that were leading the pack last week. There were up about percent and a half, and we have seen some really strong returns coming from Europe this year, and a lot of that due to increased the spending on defense. That sector has done really, really well. But what we saw last week was really equity markets kind of really remaining quite resilient and shrugging off the mixed inflation data we had and all of this rising political tension we're seeing coming out of the US.

[00:01:06] Nathan Sweeney: But you know, the big story that was dominating market attention was around pressure on Fed Chair Jerome Powell. So this is the chairman of the Central Bank within the US to resign. So last week, you know, Trump was reported to have shared a draft letter calling for Powell's dismissal and citing cost overruns on the Federal Reserve's DC headquarters.

[00:01:28] Nathan Sweeney: So basically they refurbished, you know, the head office and it's now being Cheekly nicknamed PAL'S Palace. So Sarah, just wondering what your view is on all of this.

[00:01:38] Sarah Todino: So while the White House later said there was no immediate plans to fire Powell, it's clear the administration's turning up the heat and will be installing a more dovish chair who will deliver rate cuts he's been pushing for.

[00:01:50] Sarah Todino: So the bond market reacted accordingly. Short term yields moved lower on those expectations while longer term yields rose steepening the yield curve as investors weighed risks on fed independence.

[00:02:02] Nathan Sweeney: And I think the other thing that's in the mix here really is inflation. So we did
have a raft of inflation data last week and you know, some sticky inflation data.

[00:02:11] Nathan Sweeney: So yeah, what's the data telling us?

[00:02:14] Sarah Todino: So it was a busy week for inflation print. So in the US core CPI Rose 2.9% year on year in June. That was just below expectations, but still higher than the 2.8% in May. So headline inflation there hit 2.7%. In the UK, inflation surprise to the upside. So core CPI came in at 3.7% and headline CPI hit 3.6% and both were higher than expected there. Over in the Eurozone, inflation was more stable, so core inflation held at 2.3% and headline ticked up slightly to 2%. So that's in line with the ECB target.

[00:02:57] Nathan Sweeney: So if anyone is wondering what CPI means, so it's consumer price index and basically it just tracks a basket of products that consumers buy and if the price of those products go up, basically that's how they measure inflation.

[00:03:12] Nathan Sweeney: So just looking to see, is that basket of goods going up or down over time? So what that's telling you is over the year to the end of June in the US. That basket of goods went up by 2.9%, the cost of that stuff. So when you hear people talking about CPI, now you know. So I suppose you know, really what we're seeing is overall inflation.

[00:03:32] Nathan Sweeney: It isn't going away, but it's still not that high. It's kind of in around that call at two to 3% level kind of complicates things for the central bankers, you know, particularly the head of the Fed Pal, you know, so there's growing political pressure to cut rates, but the data suggesting actually there may be a bit of inflationary p ressure. So it might justify holding rates as they are for now. B ut yeah, as you can see, there's a lot of calls by the administration in the US to try and get rates down. So let's turn to trade. So we saw a surprising move from the EU.

[00:04:05] Sarah Todino: Yes, the EU has decided to delay its retaliatory tariffs on US goods.

[00:04:09] Sarah Todino: That's despite President Trump's announcement of a 30% tariff on European products. It seems that EU is taking a more diplomatic approach, trying to keep the door open for negotiations. There's also ongoing geopolitical tension. So this week saw Donald Trump impose threats on further tariffs on Russia if peace talks with the Ukraine fail.

[00:04:29] Sarah Todino: So these issues are causing slight nervousness in the market. In terms of earnings, we saw A-S-M-L-B Q2 estimates on revenue and earnings, but one of no growth next year because of these macroeconomic and geopolitical uncertainties.

[00:04:46] Nathan Sweeney: Yeah, so speaking of earnings, let's take a quick look at the week ahead.

[00:04:50] Nathan Sweeney: So there'll be a lot of big companies reporting their earnings. So we've got the likes of Alphabet, who's Google. So that's your search engine. Coca-Cola, as we all know. And then you'll have the likes of Tesla as well. So that'll be big, you know, so are we seeing that continued slow down in their electric vehicle sales, or are they beginning to study that ship?

[00:05:07] Nathan Sweeney: So, you know, investors will be closely watching company earnings, particularly as there's concerns about, you know, all of these tariffs, do they increase inflation? What does that mean for profit margins for companies? But we largely expect that most companies will be able to manage this through supply chains.

[00:05:22] Nathan Sweeney: And because those tariffs are being pushed out. Actually, you're not really seeing that price pressure that the market was concerned about. So that's all from us this morning. So Sarah, thanks again for joining us. Really good to have you on the show.

[00:05:33] Sarah Todino: Thank you, Nathan. Always a pleasure.

[00:05:35] Nathan Sweeney: Thank you to our listeners.

[00:05:36] Nathan Sweeney: Have a great week, and we'll catch you next week on the Espresso Podcast.