This week in the markets, interest rate decisions dominate the headlines this week as the stock market hovers near all time highs in the face of a rising cost of capital.

Well, global shares remain within a couple of percentage points of the all time high reached last month, despite rather than because of the economic, political and financial headlines.

The MSCI World Index, which reached 5034 exactly a month ago, closed on Friday at 4937.

With the oil price back above $100 a barrel, inflation looking persistently high, Deepening concerns about the impact of AI, an apparently coordinated hiking cycle for the world's central banks and rising bond yields, shares are still clinging to their glass-half-full worldview.

Markets are climbing a wall of worry, supported single-handedly by still strongly rising corporate earnings.

The bull market, now almost four years old, is holding for now, but it looks fragile.

uh well you've written on this question tom in the past week or so and you came up with seven reasons why it might still make sense to stick with shares and we're going to run through those today the first of those relates to the way returns work on cash and bonds versus shares yields that we'll talk about today they aren't the only factor in the return that you're going to get on those assets

Yeah, so when you look at a bond or indeed cash, then the yield, the income that you get from that investment is the primary consideration.

So, you know, for that reason, with bond yields rising to and in some cases above 5%, cash yields on say a money market fund or north of 4%, that looks pretty attractive.

But you're right, you have to look at how returns are delivered with different assets to really make a sensible comparison.

Well, first of all, with bonds or with cash, you have to factor in inflation.

So if you've got a 3% inflation rate and you've got a 5% return on your bonds, then you have to realize that that is actually a 2% real return.

So that's one consideration.

Risk often used as a negative, but the extra risk you're taking with shares can turn into higher growth.

So, um, what has been going on, Tom, that's been helping both gold and Bitcoin then?

Yes.

So, well, there's been a lot of uncertainty in the world.

That's, that's one thing that, that's helped.

I mean, we've had a lot of geopolitical, uh, uh, upheavals, um, and then w- there has also been uncertainty around the, the, the financial situation.

We, we, we talked earlier on about, um, uh, US Treasuries.

Bond yields have been rising.

What has been your opinion of, of buying Bitcoin, Bitcoin up to now, and has your view changed at all?

This week in the markets, strong US jobs data shorten the odds on a rate hike this month.

Shares and bonds tell a different story for now.

And the midterm election race begins in Dallas.

Well, it's Labor Day in America, so the markets are closed over the pond.

Despite that, attention is firmly focused on the U.S. after last Friday's stronger than expected jobs data and ahead of this Friday's inflation data.

Both will be key to whether or not U.S. interest rates are hiked at next week's Fed meeting.

This week in the markets, shares climb the bond market wall of worry as Japanese yields hit a 30-year high and Kevin Walsh turns hawkish at Jackson Hole.

Shares ground modestly higher through the August holiday period in the face of higher bond yields and rising energy costs.

All the main indices ended the month in positive territory, with the S&P 500 rising 2.7% over the month.

NASDAQ was 4% higher, emerging markets 3.4% better, Japan 3.2% up, and Europe and the UK basically flat.

Growth stocks were given a late boost by strong quarterly results from Nvidia, which wrapped up another positive earnings season with doubled revenues of $96 billion in the April to June quarter.

The economic data remain positive with jobs numbers this week in America likely to bounce back from July's disappointment and yesterday's better than expected purchasing managers index in China adding to good growth in Germany to suggest that the global economy is in reasonable shape as we go into the autumn.

Just speak a little bit to what all this action communication suddenly looks like to you.

So I think there were two elements to what Scott Besant has done in the last three weeks or so.

I mean, I think in terms of the Japanese intervention two or three weeks ago and then last week's promise to buy long, to double the buying of long US US treasuries.

I think that both of those actually were a reflection of his concern about demand for US treasuries and what might happen if that demand were to fall away in the face of increasing supply of treasuries to the market in terms of the cost of borrowing, because we have seen this this well you know this bare steepening of the curve uh long bond yields rising well in excess of either the shorter term medium term bond yields but also the you know the the the interest rate in the us you know we've got interest rates at three and a half to three point seven five percent we've got 10-year yields at 4.7 we've now got 30-year yields at five and a quarter 5.3 percent.

And, you know, that is really problematical for the U.S. And Scott Besson's actions, both in, you know, what he did with the Japanese yen, which was really nothing to do with supporting the Japanese yen.

It was all to do with preventing the Japanese selling U.S. treasuries to prop up their own currency.

It was no different, really, from what he announced last week.

Take us first to maybe just a little bit of what investors have enjoyed in terms of diversification but growth for European equities.

Why would a bank or a lender make variable rate tracker rate mortgages cheaper than those fixed rates?

Okay, so the way I sort of think about this, the way I frame this is you need to put yourself in the shoes, if you like, of the lender, of the bank.

So if I'm lending, if you're taking out a mortgage with me, if I'm Tom Stevenson Bank, then you have a choice.

You can either have, as you say, the tracker or the variable rate mortgage, or you can fix your mortgage for two or five years or whatever.

Now, if you take out a variable rate mortgage, then essentially you are taking on all the risk that interest rates are going to move.

I, as the bank, am quite happy to just lend to you at the prevailing rate today and to know that if interest rates go up in the future, then that's fine because I'll just push up the mortgage rate and there's no risk to me.

If, however, you choose to take out the fixed rate mortgage for two or five years, then essentially I am taking all the risk that interest rates are going to move adversely.

That's the sort of difference between now and then.

Um, others have attributed a different sort of motive to this whole purchase of the yen.

Yeah.

'Cause I, I mean, you say, okay, so why does, why, why is it in the US Treasury's interest to, to, to help the Japanese out, uh, with the, with the value of their currency? Uh, well, the reason why, uh, i- is because it's actually in the interest of the US to, to, uh, support the Japanese currency.

Why? Because the, the Japanese are extremely big holders of, um, US debt, uh, US Treasury bonds.

They, in fact, they are the largest, um, uh, foreign holder of, um, of US Treasury bonds.

And the fear is that, uh, if the Japanese were to do the intervention rather than the Americans, uh, a- as it happened, if the Japanese were to do this by one of the mechanisms they could use to support their currency would be to-

Mm-hmm

... uh, into the future.

[upbeat music] This week in the markets, the US hogs the headlines in the last week of the holidays with tariffs, the Iran war, inflation, and rising bond yields in focus.

Plus, NVIDIA's results shine a late spotlight on the AI boom, and gold and Bitcoin return to favor.

Well, here in the UK, it's the final week of the holidays, and there's not much to interest investors ahead of the traditional wet August bank holiday weekend.

On the other side of the pond, however, the busy summer of news continues.

There's been no letup in the markets this year.

The bond market continues to be center stage following last week's intervention, the latest in a series in recent weeks by the US Treasury.

First things first, Tom, what record was set last week and what appears to have triggered that final push into new territory for the

FTSE? So I need to be a bit nitpicky here because I actually checked the numbers before I came in just to make sure I got them absolutely right.

The stock market, the FTSE 100 peaked on February the 27th, which was a day before the attacks on Iran by the US and Israel at 10,910.

It peaked last week at 10,908.

That was a closing.

That was a closing price.

So if you're comparing closing prices, it was not quite a new high.

What exactly did you mean by that?

Yeah, introduce yourself.

So, yeah, my name's Tom Stevenson, Grow Potatoes for M&S, based in Essex.

Yeah, so I've been on the M&S soils program over this winter, which has been a fascinating introduction.

I probably started as a bit of a regenerative cynic, I suppose.

I suppose I've come from a long term family farm where things have been done very conventionally for a long time.

And so start a program thinking, well, okay, what can we learn? What can we do? Just the network of people who I've sort of come into contact with over the winter and just thinking about soil a bit differently rather than just what do we need to throw at this to make it perform for us? We're almost asking the question, what's in the soil in the first place in terms of biology and chemistry? and and its physical properties and how we can get that to perform for us rather than us trying to make the the soil perform on of its own accord i would say really my answer to that

Have you put anything that you've learned into practice?

We're starting to.

This week in the markets, there's no let up for investors this summer with volatility in tech stocks, oil and currencies set against a two-way pool of rising earnings, which is good for shares, but also higher bond yields, the opposite.

Well, the summer holidays may have begun, but for anyone still at their desk, the markets are as challenging to navigate as ever.

Volatility is intense, notably in Asia's AI-focused markets in Korea, Japan and Taiwan.

South Korea's KOSPI index fell 17% in three sessions last week, then bounced back by 18% on Friday.

Despite the recovery, the index, which is dominated by chipmakers SK Hynix and Samsung, fell by 22% in July.

The bounce in Asia followed the best day in a year for chip stocks on Wall Street, where the Philadelphia Semiconductor Index rose by 8% on Thursday.

This week in the markets.

Oil fluctuates as tensions ebb and flow in the Gulf.

Markets hold firm despite the Mag7's underperformance.

All eyes are on interest rates, with decisions due on both sides of the Atlantic and earnings expectations nudge higher.

Well, the summer lull has arrived, but there's still enough going on to keep the attention of those investors who are still at their desks.

The oil price continues to be where the ebb and flow of Middle East tensions is most obviously reflected.

I think lots of our regular audience are going to know who Terry Smith is but introduce him anyway for us Tom and tell us why or what he's had to say about all of this recently.

Yeah.

So many people will be familiar with Terry Smith as a fund manager.

I mean, I go back long enough to remember Terry Smith when he was an analyst.

He was one of the best known banking analysts actually in the city.

We're going back to the 1980s now.

But in 1992, he was working for UBS, Phillips and Drew, as it was then.

And it's the active funds that have now assumed a position of being more sensibly spreading your money.

This week in the markets, the broad market remains resilient despite cracks showing in the AI boom.

Inflation and interest rates are the main data focus this week.

Earnings season steps up a gear, while here in the UK, Andy Burnham becomes Britain's seventh prime minister in a decade.

Although the market headlines tend to focus on a single number, shares rose or shares fell, this is always a simplification, and no more so than last week when deeper cracks showed in the dominant AI theme, but other sectors limited the damage overall.

The US market fell 1.5% last week, but beneath the surface, performances diverged.

Technology was down 3.7% and basic materials off 1.9%, but energy rose 4.5% and real estate was 2.6% higher.

Do you recognise that? And what do you think is driving the pessimism that is out there?

Yes.

I mean, this week in particular, there's been more of a bearish tone, as you say.

I think what's going on is there are a few themes playing out at the moment and they're related and they've sort of... come together because of the context of this week.

So let me explain.

I think the first issue that people are concerned about is the geopolitical risk, what's going on in the Gulf.

Obviously, tensions have ratcheted up over the last few days.

What did you say in the outlook about your view on stock markets?

This week in the markets, earnings season begins as investors find more reasons to be cautious.

Andy Burnham prepares for his coronation as Britain's next prime minister, while Kevin Walsh sets out his vision for the Fed to Congress.

The quarterly round of corporate results in America is always closely watched, but never more so than this week, as investors prepare for second quarter earnings season against a background of growing nervousness about the ongoing but fragile bull market.

As usual, the banks kick things off with results in the next few days from JP Morgan, Goldman Sachs, Morgan Stanley, Bank of America and Citigroup.

The big five are expected to report a 27 percent year on year increase in fees, thanks in part to recent big flotations like SpaceX and the US listed shares of Korean chipmaker SK Hynix.

The $2.5 billion of income from equity capital markets work around a quarter of an $11 billion total for the quarter would be the biggest inflow to the bank since 2021.

What is sort of your takeaways at this point as you've been living it and reporting on it?

So, I mean, well, there are different angles, aren't there? I mean, I think from an economic perspective, I think there is, you know, fairly broad agreement now that Brexit has not been a huge success for the UK economy.

I mean, the proponents of Brexit will claim that it just wasn't executed well enough, and the Remainers will claim that it should never have happened in the first place.

So there'll always be that disagreement.

But I think that the UK economy is probably smaller than it would have been were it not for Brexit.

I think in market terms, I wrote about this recently, and I think it's interesting because Clearly, the UK stock market has performed relatively poorly over the last 10 years, certainly compared to the US stock market.

I think it's quite difficult to really point the finger at Brexit and say that that's the reason why the UK stock market has done badly, because many of the many of the factors which have contributed to the poor performance were already happening in 2016.

Is that where you're going with that one?

It's an

interesting question.

And I think it's probably because investors view things like inflation and interest rates rather differently in Japan, because we've come out of a period, a long period of 30 years or so, when Japan has suffered under not inflation, but deflation.

And so...

What we've seen in Japan in the very recent past, in the last few years, is a return to what people are calling a healthy level of inflation.

And that inflation is being driven by strong wage growth, which is a positive for the economy because for the first time in many years, people have got more real income to spend and that is feeding through into a growing economy.

There are lots of other reasons to be positive about about what's going on in Japan.

Rates were coming down, moving down from that sort of 4% or 5% mark.

This week in the markets, volatility increases as cracks show in the AI boom, Andy Burnham sets out his long-term vision for rising living standards in the UK, and the IPO market shows some signs of life.

Investors are bracing themselves for the volatility that often accompanies the later stages of a long bull market.

16 months into the post-tariff melt-up, the first serious cracks started to show last week in the dominant AI narrative.

The Nasdaq Composite fell 4.6% while the tech dominated KOSPI index in Korea was 7% lower, and trading was halted a couple of times after big swings in prices.

The question on every investor's lips is whether the AI boom is now an AI bubble, which leads inevitably to the second key question, how to participate in the ongoing price surge while protecting the significant gains that have already been achieved.

The answer, as ever, lies in diversification.

So before we get into markets, what's the tone like in the UK right now?

Well, I mean, you're absolutely right to point out that it's only two years since the Labour Party scored a landslide victory in the last general election.

So it's pretty strange, frankly, that we should be looking at a new prime minister.

But it actually does link in with what you were talking about there with Brexit.

with the 10th anniversary of the Brexit vote.

Because fundamentally, what has happened in that two-year period since the last general election is that Reform UK, which is the insurgent right of center which has kind of replaced the Conservatives as the main opposition to the Labour government.

They have really been very successful in local government elections, and the Labour Party is worried about their ability to fight them off at the next general election.

So what does this mean for investors? Like, are there opportunities? Where do you see opportunities now then with everything that you just said?

[intro music] This week in the markets, shares tread water amid multiple uncertainties as UK Prime Minister Keir Starmer resigns, the US and Iran circle each other suspiciously, central banks weigh conflicting inflation and growth data, and the AI boom persists for now.

Well, with a lack of clarity on all the big questions facing investors, markets are adrift.

The recovery in place since the first Gulf ceasefire offered the promise of a quick resolution to the US-Iran conflict holds for now.

But investors are nervous on a variety of fronts, worrying about politics, the economy, and an increasingly mature-looking bull market.

Here in the UK, the big question over the weekend, Sir Keir Starmer's future as prime minister, was quickly resolved after he stepped out to a podium in Downing Street and set out a short timetable for the election of his replacement as leader of the Labour Party.

His departure means that the UK will have its seventh prime minister in a decade.

But the question we're really here to ask is, how do we get rich in the meantime? [laughs] So where would you be looking as an investor right now? Because I think no one knows if it's gonna be a boom or a bubble truly.

Yes.

I mean, I, I think that like any boom, you have to ride it because the, the opportunity cost of, of missing out is simply too enormous.

So that, that becomes extremely risky, um, and the longer it goes on, the riskier it becomes.

So how I would, how I would manage that as an investor is to create as much diversification within this theme as I sensibly can.

So, you know, for example, I think you have to follow the early winners, the, the, the areas where we talked about it getting ahead of itself, the semiconductors, et cetera, the, you know, the, the early beneficiaries.

But then I think you need to look further forward into who ultimately the, the user beneficiary is of the technology.

What could be the trigger that causes a re-rating, and would it be rapid, or would it be slow?

How does the past week change equations at the Fed?

Yes, I mean, I think you're right to highlight that because I think that, you know, the market is particularly sensitive to interest rates at the moment because of the new chairman of the Federal Reserve, Kevin Walsh, will be presiding over his first rate setting meeting.

of the Federal Reserve's Open Markets Committee, as it's called, next week.

This week, we've actually got some important and relevant data.

We've got some inflation data coming out tomorrow, Wednesday.

And I think everyone's going to be watching that very closely, because if that is strong, and the most recent inflation data that we had, there were various different measures of inflation.

The most recent one we had showed inflation running at about 3.8%, which is nearly twice the level of the Federal Reserve's target, 2% target.

Is that just a symptom of the fact that those bits of those markets have risen a lot, thereby they have a long way to fall? Or is there something going on in the AI story that is a particular concern?

[upbeat music] This week in the markets, jobs data trigger an AI air pocket.

The catalyst for a stock market wobble is always clear with hindsight, but never easy to spot in advance.

So it was with Friday's sharp correction in tech stocks on Wall Street, which spilled over into Asian markets after the weekend.

The trigger for a 2.6% fall in the S&P 500 at the end of what would have been a 10th week of rising share prices was a strong but far from excessive jobs data release.

The US economy added 172,000 new jobs in May.

That was double the 85,000 expected by economists and was accompanied by upward revisions in new job creations for the previous two months.