It has been a relatively quiet week for markets from a global macroeconomic perspective. In the UK, attention is turning towards next month’s much-anticipated Autumn Budget, with the latest public finance figures providing an important backdrop. Government borrowing rose to £18.3 billion in August, exceeding forecasts of around £15 billion. Despite this, the UK’s debt-to-GDP ratio remained broadly stable at just under 94%.
The figures will be of particular interest to Chancellor John Healey, who will be looking to demonstrate that the Labour government remains on track to meet its fiscal targets ahead of the Budget on 28th October. While August’s borrowing was higher than anticipated, cumulative borrowing for the financial year so far remains below the level recorded over the same period last year, offering a more encouraging perspective.
Renewed optimism surrounding the commercial potential of artificial intelligence gave technology stocks a lift midweek. Meta’s AI assistant, Muse, was launched earlier this month, with its strong initial adoption figures reigniting investor enthusiasm for the sector. The positive reception helped ease recent concerns over AI valuations and whether substantial investment in the technology would translate into meaningful commercial returns, bringing the technology sector’s recent 10-day sell-off to a more positive conclusion.
Markets are cautiously optimistic after Iranian officials suggested this week that the Strait of Hormuz could reopen within seven days, provided the U.S. reduces its military presence and lifts blockades on key Iranian ports. However, the claim remained unconfirmed at the time of writing, with Iran’s semi-official Fars News Agency subsequently denying that any such offer had been made. Markets nevertheless welcomed the prospect of a reopening, with Brent crude falling below $98 per barrel, down 4% so far this week, but still elevated over the month. President Donald Trump said that U.S. officials had held a “very good” three-hour meeting with Iran’s delegation and reiterated that any potential agreement was unlikely before the midterm elections. However, markets have heard similar rhetoric before, leaving the reaction across asset classes largely muted.
Meanwhile, France’s bond market is facing renewed pressure as concerns over the country’s sizeable budget deficit and political uncertainty weigh on investor sentiment. The spread between French and German 10-year government bond yields has widened to its highest level since 2012, highlighting growing scrutiny of France’s fiscal position.
Still to come this week, PMI data from across Europe, UK and U.S., which should provide insight of whether higher oil prices are starting to hit business activity. The main focus is high profile summit in Washington between Donald Trump and China’s Xi Jinping, with discussions expected to cover artificial intelligence, the Iran conflict, tariffs, and rare earth metals.
Nicola Tune, Portfolio Specialist