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0:06 Susannah Streeter: Hello and welcome to Switch Your Money On from Hargreaves Lansdown. This is the Investment Update episode with me, Susannah Streeter, Head of Money and Markets here at HL.
0:16 Sarah Coles: And me, Sarah Coles, Head of Personal Finance. So it's been a busy old time on the markets, hasn't it? So we had indices riding high for a bit, but there have been some ups and downs, haven't there?
0:24 Susannah Streeter: There's certainly been a lot of ups and down, not surprisingly, given that tariff day has been and gone, and we have seen sways of tariffs imposed on the US's trading partners. We have had a busy earning season too, particularly for tech companies, the Magnificent 7. We'll talk about that. And we've had an interest rate cut here in the UK. Plus I'm gonna run through some of the investor confidence data for July, just to give you a snapshot about how investors are feeling.
0:54 Sarah Coles: So I guess the first thing I should ask you about, just a little bit about that backdrop about tariffs and trade deals. So just how do you feel things are lying at the moment?
1:01 Susannah Streeter: Well, remember that phrase, TACO trade, Trump always chickens out, well he didn't this time of course. Tariff day has been and gone and tariffs have been imposed on swathes of nations trading with the United States. Now some deals had already been agreed with the UK for example but now there has been a deal reached with the European Union which will face 15% tariffs so those goods from the European Union being imported into the United States will be hit with that tariff which will have to be paid by, of course, American importers. At 15%, it's still a lot, but it is actually half the threatened rate. The EU has also got to invest $600 billion into the United States, an expectation that this will be through the procurement in defence, for example.
As far as Japan is concerned, well previously American importers had to pay a 27.5% levy on Japanese cars, and that's been reduced to 15%. And Japan has also proposed investing $550 billion in the US to enable Japanese firms to build more resilient supply chains because of course these long, snaking global supply chains are being effectively dismantled under Trump's plan. He wants much more manufacturing to be brought back to the United States. Japan says it's also going to buy US agricultural products as well.
But there are higher tariffs imposed on other nations and it is causing still ripples of worry about what could be ahead in terms of higher prices for American consumers.
2:39 Sarah Coles: I suppose one of the issues is of course, you know, there's been a certain amount of relief every time one of these deals is done that, oh good, we're only paying 10%, we’re only paying 15%, but of course this is a world away from the world before all this tariff talk started where, you know these tariffs were much lower or didn't exist at all.
2:54 Susannah Streeter: We're now back to tariff rates that we've not seen since 1933, the Great Depression era so it is pretty shocking how quickly globalisation is being dismantled. And it's not going to be easy really to roll this back either, because certainly when you see so many companies and countries pledging to support manufacturing in the United States, once they've made those investments, they're gonna be pretty wary about retracing again even if there is a change at the White House. So it certainly is a real new era for global trade and everybody is still trying to get their heads around what it's gonna mean longer term.
3:38 Sarah Coles: And I guess in an environment like this, everyone's got really close eye on any kind of measure of how things are going in the US in terms of, you know, how the economy's doing. So slightly weaker labour data really did sort of spook the market slightly, didn't it?
3:49 Susannah Streeter: Yeah, it did, and that's why you saw this real volatility as soon as that labour data came through, because there had been hopes that the US economy would end up being more resilient. It does look likely that there will be an interest rate cut on the cards in September. It's certainly not a cert, but it is looking more likely than not because of that weaker picture of the US economy. But even so, it hasn't troubled markets too much. They're still riding close to record highs. We've had a relatively buoyant corporate earnings season, and of course there is still a huge appetite for all things AI, and that's part of the reason why you're seeing such high valuations right now.
4:34 Sarah Coles: So we've obviously had quite a lot of announcements from that Magnificent 7, so do you want to sort of give us a whistle-stop tour through some of the highlights?
4:40 Susannah Streeter: Okay, so let's start that whistle-stop tour of tech results with Meta over the second quarter. It had some good results across the board, from ad revenue growth to data users all the way down to the profit lines, but the real theme of the results was the massive investment in AI. Also, Microsoft, well it exceeded expectations. The spotlight shone the brightest on the Cloud part of the business, with Azure showing 39% growth, beating the consensus forecasts, and that's with growth left on the table as demand continues to outstrip supply, such is the demand for all things AI. AI services are really delivering a big and growing chunk of Azure's growth in the last few quarters.
Now, Amazon and Apple also delivered good results, but they really were overshadowed by this exceptional performance from Meta and Microsoft. So let's look at Amazon, well it delivered across the board, but the spotlight really was firmly on AWS, no surprise really, given that it also is part of the backbone of the AI revolution, but those results didn't shine quite as brightly as expected. And Apple has been caught in a bit of a sentiment trap. Now, on paper, the company did deliver one of its strongest sets of results in recent years. So it had some pretty robust iPhone sales, a return to growth in China, and some pretty encouraging guidance but there had been this real sense of unease hanging over Apple because of scepticism surrounding its AI positioning. Also, this lingering tariff uncertainty, which affected its outlook. But we then got that pledge to spend $100 billion on increasing manufacturing in the United States and this has now led to a bit of a turnaround in sentiment towards Apple. Investors appeared encouraged by that. Expectations that it may now avoid the most onerous effects of the tariffs by pledging this big manufacturing spend, which is what President Trump wants to see.
6:38 Sarah Coles: And I suppose, you know, even in this theme of these particular companies, you can hear the sound of twists and turns affecting them. I mean I think within this environment there will always be talk of gold because people will look to gold. I mean we've talked before about how being a safe haven doesn't necessarily mean it's not volatile, but people in these sorts of environments, they do look to invest in gold, don't they?
6:58 Susannah Streeter: Yes, in uncertain times we always talk about the importance of not putting all your eggs in one basket and making sure that you're well diversified and gold is seen as a way of adding a bit of ballast to portfolios, a different asset class and certainly proved very popular. So in the second quarter alone, the total value of gold traded surged 45% to a record $132 billion. And the popularity of gold-backed ETCs and coins was instrumental in boosting demands, and central banks have continued to buy, adding 166 tonnes to global reserves.
7:35 Sarah Coles: So you can see demand coming from all sorts of angles for gold at the moment. So I guess you're talking about all this uncertainty. I guess existing in amongst all this uncertainty is a tricky business. So we obviously do our Investor Confidence Survey once a month at HL. So can you talk us through a little bit about the latest findings?
7:50 Susannah Streeter: Yes, we take a snapshot of investor's confidence every month that in July actually shows that investor’s confidence in the UK sector as a whole has stayed pretty much the same. However, confidence in UK economic growth has decreased by 26%. Not really surprising given the tariff environment, because even though the UK appears to have managed to negotiate a better deal than some nations with tariffs broadly at 10%, they're still a lot higher than companies have had to be used to.
When it comes to other sectors, we have seen changes, certainly. We saw an increase in investor confidence with the North American sector rising the most at 24%. We've also seen a bit of reversal in sentiment towards Japan and Europe. Investor’s confidence towards these markets fell in June but actually rose by 16% and 7% respectively in July. The European Central Bank has also been cutting interest rates which could stimulate economic growth while corporate governance reforms could benefit business in Japan.
Now the most popular investment trusts were a real mixed bag with more conventional trusts focused on areas such as global and European equities, as well as UK equity income featuring in the top 10 but overall, with uncertainty rippling through the global markets, gold is proving its worth once again.
9:13 Sarah Coles: So I guess gold is one of those things that people do sort of stop talking about at times when interest rates are high. So it's unusual that now at this point, when we've just had an interest rate cut, that it's all the chat. But it is worth kind of looking into that interest rate cut because the decision that the Monetary Policy Committee made it wasn't a completely clear cut, was it? So they definitely went with a cut, that was definitely decided, but it was really quite divided, wasn't it?
9:36 Susannah Streeter: Yeah, there was a real split on the Monetary Policy Committee and it's now indicating that another interest rate cut very swiftly on the heels of the one we've just had is looking less likely. We may not even get one before the end of the year and so this is all adding to the uncertainty and it’s not a surprise really that I think policy makers are cautious, of course. They are now expecting that inflation could reach 4% in September. That's double the Bank of England's target and so cutting rates again swiftly isn't viewed by some as a good idea. Others are concerned about stagnating UK growth and the fact that we're having a rise in unemployment rates, for example. So that's why you're getting these differing views and why it's looking perhaps less likely that we get a cut by December again.
10:29 Sarah Coles: So we get the sort of push-me-pull-you really don't we and different parts of the economy demanding different things. That actually has an effect on things like savings. So one of the things that happened immediately after we had this announcement was we saw the rates being cut on easy access savings rates. So those are actually really sensitive to what's happening right now. But simultaneously, in fixed rates, when they're setting the fixed rate, they're not just looking at what's happening today, they’re looking at what’s happening further ahead. And as you say that expectation of rates this side of Christmas has really diminished. We're sort of looking a bit further ahead for more rate cuts. And as a result, fixed rates have actually gone up. So we're seeing a lot more competition, particularly in that fixed rate market over a year. So it's an interesting environment. It does mean that if, for example, you've got money that you don't actually need over the next year, you might be in a position to fix it. It's actually worth looking at whether or not you should fix. One of the things that we've been sort of, looking at for a long time is this really odd savings market where you get more money in easy access than you do in fixed rates and we're starting to see that really shift. So you might be in a position where you can get more by fixing now. So it's definitely worth revisiting your savings.
11:33 Susannah Streeter: And again, it is absolutely crucial that isn't it, that to try and kind of cut through the noise, you need to sit down and really look at all your options, take that time, because it could be really worth it, couldn't it when it comes to making sure that you've got that emergency savings cushion, three to six months of essential expenditure. Right now, you could be getting a lot more for your money if you shop around.
11:55 Sarah Coles: Yes and of course, you know, when you're looking at investments obviously one of the biggest investments that a lot of people have is their pension and so when they're looking to how they take an income from their pension, they might be thinking about drawdown, they might be considering annuities but of course changes in interest rates do affect annuities so this is probably a good time to bring in Helen Morrissey our Head of Retirement Analysis. So Helen tell us what's going on in the annuities market.
12:16 Helen Morrissey: So the annuity market has been rising high in recent years. We've seen annuity rates currently, you know, close to all-time highs and this is largely due to the effect of rising interest rates. It's brought like real interest to the market. Now one of the potential issues is that as we start to see these interest rates start to come down, that we might also see annuity incomes also start to drift down but what I would say is that that is by no means set in stone. Interest rates are one factor that determine annuity incomes, but also things like long-term gilt yields are also really, really important. It's also worth saying that interest rates, you know, they might be coming down, but they're not coming down anywhere near as fast as they went up. So you know, we're not really expecting to see any kind of major collapse in terms of the incomes on offer. So I do think we are gonna see a lot more people who are maybe thinking about whether annuity is the right retirement income option for them, you might actually start seeing them put pen to paper and making that decision to go down the annuity route given where rates currently are right now.
13:23 Sarah Coles: So while we've got you, Helen as we're heading into the news quiz section of the podcast, let's keep you. I've actually wrestled the questioner role off Susanna for one week only. So here we go. Donald Trump hasn't been hiding his frustration with the Fed because he wants to see rate cuts and they held steady but which of the following has he called Jerome Powell, that's the chair of the US Federal Reserve. Did he call him a stubborn moron, a stupid person, or did he say he was too late, too angry, too stupid and too political? What do we think? [Susannah: laugh] You see, I've been off on holiday, but I can see you've written down these options for us and the last one was all in caps.
14:04 Susannah Streeter: Do you know I made that mistake. [laugh]
14:05 Sarah Coles: And I know that Donald Trump always writes those kind of missives all in capitals. So I do actually think it is too late, too angry, too stupid, and too political.
14:16 Susannah Streeter: Maybe that's an excellent choice. Who knows? Helen, what do you think?
14:19 Helen Morrissey: I must admit, reading through them, I'm doing it in his voice, and any of them could be his. I'm gonna go with a different option to Susannah though, and I'm just gonna say a stupid person.
14:30 Sarah Coles: Excellent insight, because actually they are all his. So he's levelled all three charges at poor Jerome Powell, which who I imagine can probably take it. But yes, you're absolutely right, the capitals were a giveaway, and a nice impersonation of Donald Trump as well, Susannah. That was great.
14:43 Susannah Streeter: I think you should be Quizmaster more often, Sarah. Just too entertaining. Although I don't think we are going to be writing our market reports and updates in capitals, are we?
14:52 Sarah Coles: It seems unwise, that's for sure.
14:55 Susannah Streeter: Before we go, I should say that this was recorded on the 8th of August and all information was correct at the time of recording.
15:00 Sarah Coles: Nothing in this podcast is personal advice. You should seek advice if you're not sure what's right for you. Investments and any income they produce can rise and fall in value so you could get back less than you invest, and past performance is not a guide to the future. Tax rules can change and benefits depend on individual circumstances. The government offers a free impartial service pensions-wise, to help you understand your retirement options.
15:17 Susannah Streeter: Yes, this is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment and investors should form their own view on any proposed investment.
15:27 Sarah Coles: And this hasn't been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication.
15:32 Susannah Streeter: Non-independent research is not subject to FCA rules prohibiting dealing ahead of research. However, HL has put controls in place including dealing restrictions, physical and information barriers to manage potential conflicts of interest presented by such dealing.
15:44 Sarah Coles: You can see our full non-independent research disclosure on our website for more information. So all is left is for us to thank Helen for coming into our podcast and obviously answering our silly quiz and our Producer, Elizabeth Hotson.
15:54 Susannah Streeter: Thanks very much for listening. We will be back again soon with the capitals. Goodbye.
15:58 Sarah Coles: Goodbye.
15:59 Helen Morrissey: Goodbye.