Monday Espresso Podcast - 22nd September 2025

[00:00:00] Nathan Sweeney: Good morning everybody. It is Monday the 22nd of September, and today I'm really pleased to be joined by Rory Dowie, Global Equity Portfolio Manager here at Marlborough. Good morning, Rory.

[00:00:11] Rory Dowie: Good morning, Nathan.

[00:00:12] Nathan Sweeney: So Rory, let's get a quick recap on what was happening in markets last week. So how did markets perform?

[00:00:17] Nathan Sweeney: What were the key drivers?

[00:00:19] Rory Dowie: Yeah, so it was quite a busy week for markets last week. We had obviously the US Federal Reserve cutting rates by 25 basis points on Wednesday, and that was largely expected. We also had news flow from the Bank of Japan and further news on Nvidia agreeing to buy a stake in Intel, and so quite a busy week across the globe.

[00:00:36] Rory Dowie: And on the back of that, it was a relatively solid week for equity markets. The US was up about 1% with Europe and emerging markets up about 1.5% and if there was a laggard, it would be the UK that was off about 50 basis points on the week.

[00:00:49] Rory Dowie: Obviously the UK is a fairly defensive market and that rate cuts, which generally kind of drives risk on behavior, so that was causing that.

[00:00:56] Rory Dowie: This year, just to put that in context, the S&P 500, those 500 US companies are up 13%. Europe and Japan are up 12 to 15%. But really the standout has been emerging markets. Emerging markets now up 25% in dollar terms this year.

[00:01:11] Rory Dowie: And actually, if you look underneath the bonnet, it's really China there, which is driving most of that, that China's up 36%.

[00:01:17] Nathan Sweeney: Yeah, so some really good returns coming from China and revitalisation within the tech market there, so tech stocks, you know, kind of really driving that this year.

[00:01:24] Nathan Sweeney: But speaking of news, what was the big item that markets were focused on?

[00:01:28] Rory Dowie: Yeah, clearly that was the federal reserve rate cuts, and that came through on Wednesday, and that was very much expected.

[00:01:34] Rory Dowie: They announced a 25 basis point rate cuts, and that was the first rate cut in the US since last December. You might remember over the last couple of weeks we've been discussing the tug of war between the inflation, which is still tracking above that 2% target, and then on the other side, the weakening labor markets.

[00:01:51] Rory Dowie: And clearly now it's the weakening labor market, which is causing some more concern for the Fed, and really that prompted the Fed to take action to try and help those softer jobs numbers that we've seen over the last couple of weeks.

[00:02:02] Rory Dowie: That vote was not unanimous though, so the Federal Reserve vote cut rates, we did have one dissenter that was Stephen Moran, who was a newly appointed Fed governor by Donald Trump, and he was arguing for more aggressive 50 basis point rate cut.

[00:02:15] Rory Dowie: The updated Fed projection for the rest of the year, so the market's now expecting two rate cuts by the end of the year, and probably no surprise on Thursday and Friday, stocks reacted positively on the back of that news.

[00:02:25] Rory Dowie: In fact, all of the weekly gains in the US came on Thursday and Friday.

[00:02:29] Nathan Sweeney: Yeah, and you kind of did touch upon inflation there, and we did have UK inflation out during the week, and obviously the numbers came in a little bit higher than expected on the food inflation side.

[00:02:39] Nathan Sweeney: So the headline number was 3.8% and this was the same as the previous month. But the food price element of that was up to 5.1% from 4.9%. So food, price, inflation being a little bit hot in the UK.

[00:02:56] Nathan Sweeney: And you know, we were asked by a couple of clients here, what's the reason behind that? So we did dig into the numbers and you can see that some of the inflation pickup has been too to seasonal quirks.

[00:03:07] Nathan Sweeney: So we had airline fairs and hotel prices, which were higher and the hotel prices are really being linked to Oasis reunion gig demand, driving that up, and you have seen that actually come outta the numbers in August.

[00:03:21] Nathan Sweeney: But for the higher food price inflation being an allotment holder, myself, I know firsthand that the weather does play a part and you know, the UK did experience one of the hottest springs and summers on record, great for holiday makers, not good for farmers.

[00:03:35] Nathan Sweeney: And you know, it did really hurt crop yields and animal fields and that kind of resulted in the worst harvest that we've seen in decades and that tends to push up prices.

[00:03:43] Nathan Sweeney: So things like butter have been up about 20% this year, it's 18.9%, beef is up 24.9%. So that's contributing to that inflation. And you know, these things do change because there's seasonality within it.
[00:03:55] Nathan Sweeney: So we would expect to see food price inflation normalising at some point as core inflation is already doing that.

[00:04:03] Nathan Sweeney: I suppose let's move on to some of the other regions around the world. So there was a bit of an announcement coming out of Japan during the week as well.

[00:04:10] Rory Dowie: Yeah, so one part of the world where there's more upward pressure on interest rates has been Japan.

[00:04:14] Rory Dowie: Inflation there has been a little bit stickier than the rest of the world. Furthermore, Japan, not dissimilarly to the US really, they've got an enormous debt pile. So their debt to GDP ratio, and that is total government debt to gross domestic product, that's at 235% or $8.3 trillion. So very high debt levels as well in Japan.

[00:04:33] Rory Dowie: And actually we've had years of negative yields in Japan. So actually you've had to pay the government to own its debt, essentially, Japan has been seen as a very safe investment, but actually over the last couple of years, yields have started to spike in Japan as investors have been a little bit more concerned about inflation coming back and that debt pile, meaning that you'd have to get rate increases.

[00:04:53] Rory Dowie: And actually you've seen the yield on the Japanese 10 year bond rising from zero in 2021 to up to 1.65% today, just this year it's gone from 1% to 1.65%.

[00:05:03] Rory Dowie: So, investors are really getting worried about that debt pile. They're worried about the stickier inflation, so they're wanting more reward for owning it.

[00:05:10] Rory Dowie: And on Friday, the Bank of Japan announced it was gonna start selling, and its big stockpile of Japanese equity ETFs and they have about $508 billion. And again, that was because they were stocking up on equities as part of a very kind of favorable monetary kind of easing program over the past sort of 10 years or so.

[00:05:25] Rory Dowie: So they started to announce they were going to unwind that and that obviously just sent some shockwaves through the Japanese market. And the Nikkei fell about 60 basis points on Friday to end the week. So some interesting developments in Japan there.

[00:05:36] Nathan Sweeney: Yeah, so that's a real interesting development from the Bank of Japan, and you can see a big change of track there. The market didn't really like it initially, they're pulling back from buying ETFs.

[00:05:45] Nathan Sweeney: But speaking of investments, we see Japan pulling back from some investments, but the US administration is actually making investments.

[00:05:53] Rory Dowie: Yeah, so at the start of August, the US administration announced that they were to purchase 10% of US company Intel.

[00:06:00] Rory Dowie: Why am I talking about this now?

[00:06:01] Rory Dowie: So Nvidia just this week, announced that they were investing $5 billion into Intel, and that led to Intel shares rallying about 25% on Thursday. So the US government has made quite a significant gain on that position, they bought just 27 days ago, about 50% or so.

[00:06:17] Rory Dowie: You might recall as well, just after the US government had purchased that position in Intel, they also announced that they'd struck a deal with Nvidia to start exporting their chips to China in return for getting 15% of the Nvidia revenue to let them export to China.

[00:06:32] Rory Dowie: Why I'm saying that? I think it's quite interesting because it seems like a deal could have been brokered behind the scenes here in exchange for allowing Nvidia to export to China. In return, Nvidia would invest into Intel pocketing the US governments, quite a nice healthy 50% return in just 27 days.

[00:06:49] Rory Dowie: You know, if you or I was to do that, Nathan, I think we'd be in a bit trouble, but just more evidence of the US government becoming more and more involved with kind of the equity markets in a similar way to what they've done with the Fed and speaking out against federal Reserve chair Jerome Powell.

[00:07:02] Rory Dowie: So I just thought that was an interesting point to mention as well.

[00:07:05] Nathan Sweeney: Yeah, so it's just another example of the transactional approach that the US administration is basically taking with regard to almost everything. So whether that's trade policy or investing in companies as we're seeing.

[00:07:16] Nathan Sweeney: So the week ahead is there much on the agenda? You know, it looks like a bit of a quiet week actually.

[00:07:20] Rory Dowie: Yeah, I think we need it after this one. We have some usual economic data this week, including some updates on inflation expectations. So you know, as always we'll be on top of those and we'll keep you updated.

[00:07:30] Nathan Sweeney: Okay, really insightful having you on the show. I'm sure our listeners will agree.

[00:07:33] Nathan Sweeney: Thank you everybody for listening in, have a great week.

[00:07:36] Nathan Sweeney: If you have any questions, send them in. We'd love to bring them up, and see you all next week.