Personal Wealth Management Monday Espresso Podcast

Monday Espresso Podcast - 3rd November 2025

[00:00:00] Rory Dowie: Good morning, today is Monday, the 3rd of November, and I'm Rory Dowie, Portfolio Manager here at Marlborough. Today I'm delighted to be joined by James Millwood. James is one of our Investment Analysts. So James, firstly, good morning.

[00:00:12] James Milward: Good morning, Rory.

[00:00:13] Rory Dowie: I guess starting off as usual, James, how did markets get on last week?

[00:00:17] James Milward: Markets are fairly solid at the headline level last week. Leading the way was Japan up over 6%. That was in the back of Trump meeting the new Japanese Prime Minister. Close to home, Europe was flat and the UK was up just under 1% across the pond In the US third course, earning season is well underway and we have had an interest rate announcement from the Federal Reserve.

[00:00:37] James Milward: The US finished up just under 1%. As last Friday was Halloween, the last day
of October, the US has now posted six months of consecutive gains. Its longest monthly streak since August, 2021.

[00:00:50] Rory Dowie: Brilliant. Thanks, James. I guess lots to unpack there, but again, importantly, another fairly solid week for equity markets and six consecutive months of now positive returns in the US.

[00:00:59] Rory Dowie: Who would've thought that back in March during Liberation day? I guess we spoke about Japan last week, so let's move to the US. There's a huge amount going on there. You mentioned the interest rate decision, what's the latest on that front?

[00:01:17] James Milward: On Wednesday, the Federal Reserve cut interest rates by 25 basis points from 4% to 3.75%, though, perhaps the most important point from that announcement were the comments made by Federal Reserve Chairman Jerome Powell. Powell stated a further reduction in policy rates at December's meeting is not a foregone conclusion far from it. What does this mean for markets? Well, markets have been expecting a December rate cut, and after those remarks by the Federal Reserve Chairman, the probability of a December rate cut fell from 90% to nearer 60%, and that did wear on US
markets having opened up 0.5% the S&P ended the day flat.

[00:01:54] Rory Dowie: Yeah, so really there on Wednesday that statement from Powell causing, you know, markets to fall initially from the 0.5% that they'd opened ended flat on the day. And I guess the US is still bringing down those interest rates, but it's just the likelihood of that rate cut in December, which has has kind of fallen though, I guess importantly to highlight, it's still more likely than not to happen.

[00:02:13] Rory Dowie: To me, it feels like Jerome Powell is sort of tempering those market expectations more than anything just in case we do see any changes in the data. I guess just recall over this year, the Fed has been battling with the weakening labour market on one side i.e, there's been more unemployment, there's been less jobs, and that's versus high inflation on the other side.

[00:02:31] Rory Dowie: So we had the rate cut in September. We've now had one in October. So clearly the Fed has been increasingly worried about the jobs markets. But recall, back in August, Powell stated the Fed will remain data dependent. So watching what the data tells them. So in essence, he's reminding the markets of that statement here and not to get ahead of itself and expecting rate cuts.

[00:02:49] Rory Dowie: Trump, we've not spoken about him for a few weeks, but he was out on the road this week traveling. James, what's the latest there?

[00:02:54] James Milward: Trump has been making a whistle stop tour of Asia, attending the Association of Southeast Asian Nation Summit, and he has been meeting with the heads of state of several Southeast Asian countries addressing various issues.

[00:03:06] James Milward: And the headline of this visit was Trump's meeting with the Chinese President Xi Jinping. Investors had been anticipating this, given the escalating trade war this year between the two states, and they were hopeful that tensions may ease. So what was the outcome? The key outcome was that Trump agreed to reduce his tariff increase of 20% imposed on China over its role in producing fentanyl and chemicals used to make it, Trump agreed to reduce this tariff to 10%.

[00:03:31] James Milward: Additionally, the US confirmed that it would take the average tariff on Chinese goods down from 57% to 47%. Trump hailed these talks a great success. However, there is still a lack of visibility on a number of areas, such as sales of computer chips, so we are very much in wait and see territory at the moment.

[00:03:51] Rory Dowie: So I guess positive developments that conversations are being had, James, but as you say, a lot of unknowns on the details, but again, a step in the right directions. It does seem like there's been a deescalation of those trade tensions. It's another news, third quarter earnings season. We've had five members of the Magnificent Seven report last week.

[00:04:08] Rory Dowie: Those magnificent seven companies, a name given to those seven mega companies in the US that have been really driving the US equity markets over the last couple of years. We had Alphabets, the parent company of Google, Microsoft, and meta owners of Facebook, WhatsApp, Instagram on Wednesday, and then Apple and Amazon reported on Thursday.

[00:04:25] Rory Dowie: So I guess without going into too many details, what are the key themes there, James?

[00:04:30] James Milward: Well, I won't get into any specific numbers, but the headline results were very strong. Profitability growth generally exceeded expectations and grew upwards of 30% compared with last year. Key themes were that these businesses are still spending a huge amount on building out data centers.

[00:04:45] James Milward: Why is this? They're seeing huge amounts of demand for compute. That is the processing power required to power products like ChatGPT, Gemini, and Copilot. So those tools are being used hugely by people around the world at the moment. One interesting statistic is Google Gemini now has 650 monthly active users up from 450 million last quarter.

[00:05:07] James Milward: These companies guided they will increase capital expenditure for 2026 to meet this demand.

[00:05:13] Rory Dowie: So I guess James, it seems like this AI spend really isn't going away. And one thing we've been discussing as a team is what these high levels of expenditures on building out data centers might mean for company profitability.

[00:05:25] Rory Dowie: Clearly, if they're spending more, the costs rise and that will lead to lower profitability. So we are watching that dynamic. Quite closely. I guess if you zoom out a little bit, historically, tech companies have not been seen as companies that have lots of assets. i.e. they haven't had lots of big buildings like data centers, and they've been highly, highly profitable.

[00:05:43] Rory Dowie: But actually is that dynamic changing now given they're now spending more on data centers, they come with higher costs, and again, that could erode profitability. However, as you just sort of said, James, that this week the numbers have shown that they're still managing to remain highly profitable, even with that spend, but if they're increasing that next year.

[00:05:58] Rory Dowie: So James, anything our listeners should be looking out for this week ahead?

[00:06:01] James Milward: Well, it'll be another busy week for third quarter earnings. We may also have some more macroeconomic data out from the US and closer to home Europe, so we'll keep an eye out on those and update you on anything more important next week.

[00:06:14] Rory Dowie: Great. That was very insightful, James. Thank you very much. Hope our listeners enjoyed it and wish you all a great week ahead.