This week, comments from senior AI figures including OpenAI CEO Sam Altman and Anthropic CEO Dario Amodei briefly unsettled AI-related equities, with semiconductor stocks particularly affected. Their comments centred not on bringing AI development to a halt, but on whether the pace of progress should be moderated so that safety measures and oversight can keep up with increasingly capable systems. Nevertheless, since AI has been a major source of enthusiasm in markets, with big tech companies and semiconductor firms contributing significantly to recent gains, suggestions that development may need to proceed more cautiously raised concerns about whether a slower pace could delay new products, reduce infrastructure spending and ultimately temper some of the growth expectations that have built up around the sector.
Escalating tensions in the Middle East pushed oil prices higher this week. A series of drone strikes forced Saudi Arabia to shut its East-West oil pipeline, adding to uncertainty around the flow of crude from the region and ultimately increased Brent prices temporarily. The rise in energy prices has also intensified concerns over inflation and interest rates. The yield on the 10-year US Treasury rose above 5% on Tuesday, reaching its highest level since July 2007, as investors adjusted to the prospect of higher inflation and tighter monetary policy. Attention now turns to the Federal Reserve, with markets expecting an interest rate increase at Wednesday’s policy meeting.
Over in China, authorities announced this week that they want new energy vehicles to account for around 70% of new passenger car sales by 2030. However, the target may be less ambitious than it initially appears, with new energy vehicles already accounting for around 65% of passenger car retail sales. The rapid adoption of EVs is also having a growing impact on oil demand more broadly, with electric vehicles estimated to displace around 1.2 million barrels of oil demand per day in China in 2026. Against this backdrop, the new target highlights just how quickly the country’s shift towards electric mobility is progressing, while potentially adding to longer-term pressure on demand for transport fuels.
Meanwhile, elsewhere in the economy, mixed signals continue to emerge. Retail sales grew by just 0.4% year-on-year in August, falling short of the 0.8% expected, while industrial production accelerated to a stronger-than-expected 5.2%. The latest data highlights the current uneven nature of China’s economic momentum, with strong production and manufacturing activity contrasting with comparatively weak domestic consumption.
UK inflation data was released this morning. Prices rose by 3.1% in August, up from 2.9% in July and in line with expectations. However, core inflation, which strips out more volatile components such as energy and food, remained unchanged at 2.6%, suggesting that underlying price pressures have not strengthened significantly. The figures come alongside signs that the UK labour market continues to cool. Job vacancies fell to 702,000 in the three months to August, their lowest level since 2014 outside the pandemic period, while the unemployment rate remained unchanged at 4.9% in the three months to July. Private-sector wage growth also slowed to 2.9%, its weakest pace since late 2020, providing further evidence that pressures from the labour market are easing. Attention now turns to the Bank of England’s interest rate decision tomorrow. The latest inflation reading adds to the challenge facing policymakers, but the combination of stable core inflation, slowing wage growth and a softer labour market provides some reason for caution. The Bank is widely expected to leave Bank Rate unchanged at 3.75%.
Still to come this week we have Japan’s inflation rate as well as the Bank of Japan interest rate decision and UK retail sales.
Nicola Tune, Portfolio Specialist