Monday Espresso Podcast - 28th July 2025

Andrew Shaw: [00:00:00] Good morning everyone. This week I'm joined by Rory Dowie, portfolio Manager. Morning Rory.

Rory Dowie: Morning Andrew.

Andrew Shaw: So last week, markets relatively steady, US, Europe, and the UK all in positive territory and similar case in EM. There was one standout market last week, which was Japan, which finished the week up over 4%.

No guess is what caused it there. It was trade related news. Rory, would you like to elaborate on the trade deal with Japan?

Rory Dowie: Yeah, absolutely. Andrew. Yeah, as you said, Japan was a real outlier last week across major equity markets, and that was because of the trade deal that we saw. The administration announced it finalized a trade agreement with Japan, which essentially concluded a 15% American tariff on Japanese imports, and then going the other way Japan had agreed to invest about $550 billion into the US. Unsurprisingly, president Trump hailed it as a massive deal stating that Japan would [00:01:00] open its country for trade on cars, trucks, rice, and and, and other sorts of agricultural products in return pay reciprocal 15% tariff to the US.

And clearly, you know, that's amid the backdrop. You know, Trump had threatened 25% tariffs on Japanese imports starting at the start of August if negotiations had failed. But yeah, really that was, that was, that was great for the Japanese market and gave some of more certainty. So yeah. Good, good developments there.

Andrew Shaw: There's positive news for Japan. So what was the market reaction?

Rory Dowie: So yeah, in Japan it was up strongly on the news, up 4% and really because those tariffs were, were better than expected 15% versus the 25% that, that Trump had been threatening. Actually, interestingly, if you look within Japan, automakers were, were driving the market higher.

Toyota, one of one of the major automakers in Japan was up 15% on the day. And actually some of the US automakers were down quite heavily. Why is that? US automakers are still being impacted by the, the tariffs which are on imported steel and [00:02:00] aluminum, a 50% tariff that they have there. Whereas that 15% tariff in Japan is clearly less than that.

So, you know, whilst Trump wants to make America great again, he wants to boost domestic manufacturing. You know, that's actually had the opposite effect with that trade deal. So I thought that was quite an interesting market development.

Andrew Shaw: Yeah, definitely. Definitely was. And so. Every quarter we end up in earning season and we're, we're well and truly into the meat of earning season now.

Who was reporting last week and, and, and what were they reporting?

Rory Dowie: Yeah, so we had earning season, the Q2 start a couple of weeks ago that started with the major US banks, which were generally better than expected. But last week really we started to get into what I call the meat of earning season. We had companies such as Alphabet, TSMC, or reporting numbers.

So I'd like to touch on Alphabet firstly, they posted excellent numbers. Again, and I think this is, this is particularly interesting because you know, that's despite investor concerns around the search business, the narrative, there has been the concern around the impact of these LLM or these large [00:03:00] language models such as ChatGPT, or Gemini, and actually Alphabet's, you know, the traditional Google search is continuing to deliver, you know, fantastic performance in spite of the rise of these LLMs and that search business grew 12% year on year.

Just to highlight how you know how quickly these LLMs are growing. So Gemini, which is the alphabet's, LLM, that's now running at 450 million monthly active users. So really, you know, just a year or two ago, this stuff didn't really exist and now we're already at 450 million active users a month.
So just to kind of highlight how quickly some of this stuff is gaining traction there.

Andrew Shaw: Yeah, that's fabulous. Can you touch on TSMC as well?

Rory Dowie: Yeah, so for those of you don't know, Taiwan Semiconductor, it's basically a big chip manufacturer in, in Taiwan. They are opening factories in the US now as well. But essentially the likes of Nvidia, Apple, you know, other tech companies will design their chips and then they'll outsource the manufacturing to TSMC.

So when TSMC report their numbers its generally quite a good [00:04:00] barometer for us to understand what the health is looking like of some of the broader tech sector. TSMC reported numbers last week. Those numbers were very, very good. And really the headline there was, you know, the raising of the full year revenue guidance.

So based on last earning season, they had been expecting full year revenue growth of between 20 to 30% this year, and actually they upgraded that to 30%. So, you know, we saw a further raise, and again, that is sort of underpinning how strong the kind of chip demand is. And actually if you look at some of the products on the TSMC side, it's really within, in that kind of AI segment of their product suites, which is really helping to drive that revenue.

So you saw kind of some of the other tech names rise on the back of those earnings and again, hopefully painting a positive picture for the rest of the tech sector to report over the next couple of weeks.
Andrew Shaw: Fabulous. Thank you very much for those insights there. And so what have we got this week? Well, the US fed a meeting on Wednesday.

Expectations from the market that there will be no cut this week. [00:05:00] And there's some other economic data out in the US and that's non-farm payrolls and some PMI data, some purchasing, manufacturing indices coming out. And then three of the mag seven, so to speak, will be reporting as well. And that'll be Microsoft, apple and Amazon.

And so hope you all have a great week, and thank you very much for listening.