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 – 9 Oct - Defence stocks wobble a bit on ceasefire in Gaza, AI continues to power broad gains, HSBC takes a hit from Hang Seng deal
Neil Wilson
Investor Content Strategist
Note: This is marketing material. This article is not investment advice, capital is at risk.
Key Points
- Defence shares and gold in focus as Israel and Hamas move closer to peace deal
- Dollar rally continues after FOMC meeting minutes hint at inflation risks
- Lloyds lower after fresh update on motor finance warning of material increase in provision
- HSBC down sharply on deal to acquire rest of Hang Seng Bank
Ceasefire: Israel and Hamas have agreed a deal to release all remaining hostages as part of the first phase of President Donald Trump’s plan to bring peace to the region. “ALL of the Hostages will be released very soon, and Israel will withdraw their Troops to an agreed upon line as the first steps toward a Strong, Durable, and Everlasting Peace,” he posted on his Truth Social account. Israel’s cabinet is convening today to approve the agreement. Is Trump about to secure the Nobel Peace Price?
Watch defence stocks and gold. Both have enjoyed a bumper run from the geopolitical risk premium since the October 7th attacks two years ago. Both seem to be pulling back today with gold coming off yesterday’s record high and Rheinmetall, Hensoldt, Leonardo, Thales –1%, Saab –2%. In London, Babcock, BAE Systems and Rolls are lower. But both gold and defence stocks also enjoy structural tailwinds. For which read reports that Nato allies are discussing how to more forcefully respond to Russia’s hybrid warfare tactics. This could include the use of armed drones on the frontiers and enabling pilots to more easily open fire on Russian aircraft. That could get spicy.
Plus ca change: Emmanuel Macron, the French president, will appoint a new prime minister by Friday. It was always the easiest path of the three routes open to Macron after his latest prime minister, Sebastien Lecornu, resigned on Monday. It’s thought that the immediate risk of snap elections has receded – ultimately there the country needs new elections not another round of these pointless attempts to secure a budget for 2026.
Minutes from the last Fed meeting suggested some policymakers are worried about inflation, but most still want more rate cuts this year. They seem more concerned about the labour market, even if that is a mistake. Remember this was a policy meeting where they raised inflation and growth forecasts and cut unemployment estimates yet still cut rates – no wonder the stock market is soaring. Some policymakers favoured leaving rates unchanged due to inflation worries. That should be plenty for the market to get into to for the grind-up to morph into the melt-up. Nevertheless, front-end Treasury yields pushed up a few bps after the release to 3.60%, giving some more momentum to the long dollar trade, pushing DXY up to 99 again as weakness in JPY and EUR continues to favour USD.
Despite talks of bubbles and warnings from the Bank of England and Jamie Dimon, no less, about the risks of overpriced equity valuations, AI is not letting up as Wall Street posted more records on Wednesday. The S&P 500 and the Nasdaq Composite hit new all-time intraday and closing highs yesterday, having wobbled a touch on Tuesday to break a 7-day win streak. More AI-related goodies were delivered overnight from TSMC, the world’s largest contract chipmaker, which reported a 30% increase in Q3 sales, surpassing expectations amid strong AI demand. Major US tech companies like Nvidia are driving growth as TSMC supplies advanced chips. AMD rallied a further 11% following its OpenAI deal. Margin weakness in Oracle's cloud business doesn't seem bother anyone.
Despite some solid gains for the miners on higher copper prices the FTSE 100 declined about 0.4% early Thursday as HSBC pulled the index lower with its roughly 6% decline on news it plans to acquire the rest of Hong Kong-listed Hang Seng Bank that it does not already own. The deal, which is paying a 30% premium for the shares, will see HSBC take a 125bps CET1 capital impact on day one and it plans to pause share buybacks for three quarters to rebuild capital. Could be one to look at but Hang Seng Bank has been exposed to softer property markets in Hong Kong and reported impaired loans hit 6.7% of total loan book in June 2025, up from 2.8% at the end of 2023.
Lloyds says it may need to make material extra provisions for motor finance redress – something of a surprise as yesterday it was all about good news because the FCA indication was below the lower end of previous estimates. “Uncertainties remain outstanding on the interpretation and implementation of the proposals but based on our initial analysis and the characteristics of the proposed scheme, an additional provision is likely to be required which may be material,” the bank reported this morning. Shares handed back yesterday’s advance, declining around 2% at the open.
On gold - just a note to say that geopolitical risk premia has clearly been a factor over the last two years - could this trigger a correction in the market as it seems very extended right now?
Watch defence stocks and gold. Both have enjoyed a bumper run from the geopolitical risk premium since the October 7th attacks two years ago. Both seem to be pulling back today with gold coming off yesterday’s record high and Rheinmetall, Hensoldt, Leonardo, Thales –1%, Saab –2%. In London, Babcock, BAE Systems and Rolls are lower. But both gold and defence stocks also enjoy structural tailwinds. For which read reports that Nato allies are discussing how to more forcefully respond to Russia’s hybrid warfare tactics. This could include the use of armed drones on the frontiers and enabling pilots to more easily open fire on Russian aircraft. That could get spicy.
Plus ca change: Emmanuel Macron, the French president, will appoint a new prime minister by Friday. It was always the easiest path of the three routes open to Macron after his latest prime minister, Sebastien Lecornu, resigned on Monday. It’s thought that the immediate risk of snap elections has receded – ultimately there the country needs new elections not another round of these pointless attempts to secure a budget for 2026.
Minutes from the last Fed meeting suggested some policymakers are worried about inflation, but most still want more rate cuts this year. They seem more concerned about the labour market, even if that is a mistake. Remember this was a policy meeting where they raised inflation and growth forecasts and cut unemployment estimates yet still cut rates – no wonder the stock market is soaring. Some policymakers favoured leaving rates unchanged due to inflation worries. That should be plenty for the market to get into to for the grind-up to morph into the melt-up. Nevertheless, front-end Treasury yields pushed up a few bps after the release to 3.60%, giving some more momentum to the long dollar trade, pushing DXY up to 99 again as weakness in JPY and EUR continues to favour USD.
Despite talks of bubbles and warnings from the Bank of England and Jamie Dimon, no less, about the risks of overpriced equity valuations, AI is not letting up as Wall Street posted more records on Wednesday. The S&P 500 and the Nasdaq Composite hit new all-time intraday and closing highs yesterday, having wobbled a touch on Tuesday to break a 7-day win streak. More AI-related goodies were delivered overnight from TSMC, the world’s largest contract chipmaker, which reported a 30% increase in Q3 sales, surpassing expectations amid strong AI demand. Major US tech companies like Nvidia are driving growth as TSMC supplies advanced chips. AMD rallied a further 11% following its OpenAI deal. Margin weakness in Oracle's cloud business doesn't seem bother anyone.
Despite some solid gains for the miners on higher copper prices the FTSE 100 declined about 0.4% early Thursday as HSBC pulled the index lower with its roughly 6% decline on news it plans to acquire the rest of Hong Kong-listed Hang Seng Bank that it does not already own. The deal, which is paying a 30% premium for the shares, will see HSBC take a 125bps CET1 capital impact on day one and it plans to pause share buybacks for three quarters to rebuild capital. Could be one to look at but Hang Seng Bank has been exposed to softer property markets in Hong Kong and reported impaired loans hit 6.7% of total loan book in June 2025, up from 2.8% at the end of 2023.
Lloyds says it may need to make material extra provisions for motor finance redress – something of a surprise as yesterday it was all about good news because the FCA indication was below the lower end of previous estimates. “Uncertainties remain outstanding on the interpretation and implementation of the proposals but based on our initial analysis and the characteristics of the proposed scheme, an additional provision is likely to be required which may be material,” the bank reported this morning. Shares handed back yesterday’s advance, declining around 2% at the open.
On gold - just a note to say that geopolitical risk premia has clearly been a factor over the last two years - could this trigger a correction in the market as it seems very extended right now?
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