Quarterly Outlook
Q4 Outlook for Investors: Diversify like it’s 2025 – don’t fall for déjà vu
Jacob Falkencrone
Global Head of Investment Strategy
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London Quick Take – 12 November - Gilt yields higher as Budget pressure cooker turns up to 11, FTSE hits record high with SSE investment news, AI trade wobbles
Neil Wilson
Investor Content Strategist
Note: This is marketing material. This article is not investment advice, capital is at risk.
Click here for the week ahead
For more Budget coverage check our first podcast episode with BlondeMoney's Helen Thomas
Key Points
- PM Starmer leadership challenge briefing dominates headlines and pushes gilt yields higher
- Sterling dip and FTSE 100 rises to new record high with SSE leading gains on £33bn investment
- AI stocks back in wobble mode with Nvidia falling on SoftBank sale
- Dow Jones rallies to fresh record high
Challenge laid down: The extent to which the Budget might be a political turning point in this parliament (and lead to a major market reaction) was laid bare last night as the PM decided to pre-emptively tell the lobby he’d fight any leadership challenge if the Budget lands badly.
Wes Streeting is the stalking horse – apparently, he has "50 frontbenchers willing to stand down if the Budget landed badly and the prime minister did not go".
Streeting’s spokesman said it was untrue, there is no plot to oust Starmer post-Budget...a very odd situation as the briefing last night by Starmer which was designed to play down any rumours about a coup is doing the exact opposite. It comes a week after Rachel Reeves surprised us all with a speech that said almost nothing explicitly but was seen widely – and correctly IMHO – as signalling income tax rises in the Budget. It smacks of panic in the govt - to have one surprise/bizarre briefing is a misfortune, to have two in a single week is extremely careless...we still have two weeks to go!
It points to the very real risk that the Budget leads to unrest within the parliamentary Labour party, a big market reaction, and the fall of Starmer and Reeves. Markets won’t care that fiscal headroom is being built by tax hikes if the Chancellor and PM cannot survive. Instability with the politics means fiscal instability, which means market instability re gilts - perhaps baking in a premium for an even more left-leaning, tax-and-spend government...we are heading to a fiscal showdown and political crisis that will show up in volatility in gilts and sterling – potentially a serious wobble in the pound if gilts run. The key risk is that if Reeves and or Starmer go then their fiscal rules which have underpinned an easing in gilt yields, would be in serious doubt.
GBPUSD is modestly weaker this morning with 10yr gilt yields modestly higher. US bond markets reopen today following the Veterans Day holiday with the 10yr Treasury yield lower.10yr gilt yields nudged up to 4.425% having dipped on Tuesday following the soft labour market report. We should watch sterling carefully though as we have seen a sharp move lower starting around 08:43...one to watch as it tests yesterday’s lows at 1.3115. We’re still some way off the 1.30 round number tested last week following Reeves’s surprise speech that tacitly laid the ground for an income tax hike.
I looked at the impact of the Budget on sterling in the second episode of our podcast series with BlondeMoney's Helen Thomas.
The FTSE 100 rose a touch to make a fresh record high at 9,928...not far to go until the magic 10k. BAE Systems shares were flat as it stuck to full-year guidance in its latest trading update. Among the risers, Games Workshop rallied almost 5% and Burberry was over 3% higher.
SSE shares led the gainers with a whopping 11% jump on its 5-year, £33bn, a "once-in-a-generation investment opportunity". It’s a serious boost to capital allocation into UK electricity infrastructure. The investment by the wind farm and hydroelectric power generator could be a useful boost to the Chancellor.
More Budget stuff... Taylor Wimpey shares were down 3% after its net private sales rate down to 0.63 from 0.71 in the period since the end of June, which reflects current uncertainty in the housing market ahead of the November Budget. Market conditions remain challenging, impacted by uncertainty ahead of the upcoming UK Budget and continued affordability pressure, management said. Rate cuts are coming though.
Back in the US, the Dow Jones rallied almost 1.2% to a record high with gains for health and biotech names like Merck, Amgen and J&J. Reopening of the US government appears to be a risk-on event with liquidity improving & driving flows into risk assets and some currencies. The S&P 500 managed to eke out a 0.2% gain while the Nasdaq slipped with Nvidia.
AI Bubble
Nvidia slipped 3% after SoftBank exited its stake for about $6bn...SoftBank shares tumbled as it plans to use this cash to big on other AI investments, like with OpenAI and in robotics. Is this a signal the investment cycle is moving from 'picks and shovels' to real-world use cases..?
CoreWeave shares tumbled 16% after issuing soft guidance for the current quarter just when AI valuations are being questioned.
Nebius shares fell 7% yesterday after missing revenue expectations, though it inked a $3bn data centre deal with Meta.
AMD way more bullish - sees >35% annual revenue growth over 3–5 years driven by “insatiable” AI demand; AI data centre revenue to rise ~80% avg, targets adjusted EPS >$20 and operating margin >35%.
Elsewhere...
US government reopening has spurred a move in the yen, which has produced a reaction from the finance ministry. Finance minister Satsuki Katayama voiced concerns about “one-sided, rapid currency moves” and that the government is “watching for any excessive and disorderly moves with a high sense of urgency.” So far the jawboning has not seen a reaction though with USDJPY above 154 seeing the yen at its weakest in almost two years.
Reopening of the government also seems to have spurred a sustained move higher in gold prices with spot gold touching $4,145/oz this morning.
Wes Streeting is the stalking horse – apparently, he has "50 frontbenchers willing to stand down if the Budget landed badly and the prime minister did not go".
Streeting’s spokesman said it was untrue, there is no plot to oust Starmer post-Budget...a very odd situation as the briefing last night by Starmer which was designed to play down any rumours about a coup is doing the exact opposite. It comes a week after Rachel Reeves surprised us all with a speech that said almost nothing explicitly but was seen widely – and correctly IMHO – as signalling income tax rises in the Budget. It smacks of panic in the govt - to have one surprise/bizarre briefing is a misfortune, to have two in a single week is extremely careless...we still have two weeks to go!
It points to the very real risk that the Budget leads to unrest within the parliamentary Labour party, a big market reaction, and the fall of Starmer and Reeves. Markets won’t care that fiscal headroom is being built by tax hikes if the Chancellor and PM cannot survive. Instability with the politics means fiscal instability, which means market instability re gilts - perhaps baking in a premium for an even more left-leaning, tax-and-spend government...we are heading to a fiscal showdown and political crisis that will show up in volatility in gilts and sterling – potentially a serious wobble in the pound if gilts run. The key risk is that if Reeves and or Starmer go then their fiscal rules which have underpinned an easing in gilt yields, would be in serious doubt.
GBPUSD is modestly weaker this morning with 10yr gilt yields modestly higher. US bond markets reopen today following the Veterans Day holiday with the 10yr Treasury yield lower.10yr gilt yields nudged up to 4.425% having dipped on Tuesday following the soft labour market report. We should watch sterling carefully though as we have seen a sharp move lower starting around 08:43...one to watch as it tests yesterday’s lows at 1.3115. We’re still some way off the 1.30 round number tested last week following Reeves’s surprise speech that tacitly laid the ground for an income tax hike.
I looked at the impact of the Budget on sterling in the second episode of our podcast series with BlondeMoney's Helen Thomas.
The FTSE 100 rose a touch to make a fresh record high at 9,928...not far to go until the magic 10k. BAE Systems shares were flat as it stuck to full-year guidance in its latest trading update. Among the risers, Games Workshop rallied almost 5% and Burberry was over 3% higher.
SSE shares led the gainers with a whopping 11% jump on its 5-year, £33bn, a "once-in-a-generation investment opportunity". It’s a serious boost to capital allocation into UK electricity infrastructure. The investment by the wind farm and hydroelectric power generator could be a useful boost to the Chancellor.
More Budget stuff... Taylor Wimpey shares were down 3% after its net private sales rate down to 0.63 from 0.71 in the period since the end of June, which reflects current uncertainty in the housing market ahead of the November Budget. Market conditions remain challenging, impacted by uncertainty ahead of the upcoming UK Budget and continued affordability pressure, management said. Rate cuts are coming though.
Back in the US, the Dow Jones rallied almost 1.2% to a record high with gains for health and biotech names like Merck, Amgen and J&J. Reopening of the US government appears to be a risk-on event with liquidity improving & driving flows into risk assets and some currencies. The S&P 500 managed to eke out a 0.2% gain while the Nasdaq slipped with Nvidia.
AI Bubble
Nvidia slipped 3% after SoftBank exited its stake for about $6bn...SoftBank shares tumbled as it plans to use this cash to big on other AI investments, like with OpenAI and in robotics. Is this a signal the investment cycle is moving from 'picks and shovels' to real-world use cases..?
CoreWeave shares tumbled 16% after issuing soft guidance for the current quarter just when AI valuations are being questioned.
Nebius shares fell 7% yesterday after missing revenue expectations, though it inked a $3bn data centre deal with Meta.
AMD way more bullish - sees >35% annual revenue growth over 3–5 years driven by “insatiable” AI demand; AI data centre revenue to rise ~80% avg, targets adjusted EPS >$20 and operating margin >35%.
Elsewhere...
US government reopening has spurred a move in the yen, which has produced a reaction from the finance ministry. Finance minister Satsuki Katayama voiced concerns about “one-sided, rapid currency moves” and that the government is “watching for any excessive and disorderly moves with a high sense of urgency.” So far the jawboning has not seen a reaction though with USDJPY above 154 seeing the yen at its weakest in almost two years.
Reopening of the government also seems to have spurred a sustained move higher in gold prices with spot gold touching $4,145/oz this morning.
For more Budget coverage check our first podcast episode with BlondeMoney's Helen Thomas
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