Personal Wealth Management Monday Espresso Podcast

Monday Espresso Podcast - 4th August 2025

[00:00:00] Andrew Shaw: Good morning everyone. My name is Andrew. I'm the fixed income analyst in the Marble Multi-Asset Team. This week I'm joined by James Athey, fixed income Portfolio Manager. Morning James.

[00:00:10] James Athey: Good morning, Andrew. I cannot believe that they've let us two fixed income folk loose together on the podcast.

[00:00:17] Andrew Shaw: Let us loose indeed. It'll be great, don't you worry.

[00:00:21] Andrew Shaw: Equity markets last week, were in negative territory, especially towards the end of the week.

[00:00:25] Andrew Shaw: In Europe, we were down and across the Atlantic, jobs numbers, which we will touch on in a minute, definitely sent the market dipping towards the Friday close in the UK. The FTSE100 was down, however, less than its peers.

[00:00:39] Andrew Shaw: Bond yields declined on the week, which leads us to mention that the Federal Reserve had a meeting, as did the Bank of Japan. I'm going to ask James, what were your thoughts on the central bank meetings and the equity markets from last week?

[00:00:50] James Athey: Yeah, turned out to be a busy week in the end, you mentioned obviously two central bank meetings. We had the Bank of Japan and the Federal Reserve, both on Wednesday.

[00:01:00] James Athey: Surprises from both in different directions though, the market had certainly not been expecting policy changes from either bank, that is absolutely what we got in the end. No rate hikes, no rate cuts, but while the Bank of Japan provided what was a dovish surprise to markets, in spite of increasing their inflation forecasts, suggesting higher rates in the future.

[00:01:24] James Athey: The governor there spent the press conference really making excuses for why that might not happen. Then the opposite, really, from Fed chair Jerome Powell. He really raised questions about their intentions or likelihood of cutting rates at their September meeting in spite of two governors dissenting, on Wednesday and voting for 25 basis points cuts at that meeting.

[00:01:48] James Athey: So that's a slightly surprising reaction, and therefore we saw interest rates at the very front end of the yield curve rising.

[00:01:55] James Athey: You also mentioned equity markets, yeah, we had our eyes on, reporting season, and particularly some of those magnificent seven firms that were reporting last week, particularly those that have been heavily involved in AI, provision cloud services related to AI in particular.

[00:02:10] James Athey: So we have Microsoft and Google growing their AI businesses over 30%, that really raised expectations for Amazon, which reported later in the week, and in spite of also growing strongly in that area of their business, AWS growing 17%. That was subsequently seen as a disappointment for investors, and we saw Amazon's stock price declining as a result.

[00:02:32] Andrew Shaw: Friday's job numbers were a slight surprise to the markets and revisions to previous job numbers as well.

[00:02:39] Andrew Shaw: Equity markets did not like these figures. And how did this affect the world of bonds?

[00:02:43] James Athey: It's been an interesting one in jobs numbers for years now, certainly post COVID, we've seen actually quite a lot of uncertainty and volatility in the data.

[00:02:52] James Athey: There are really, some pretty good reasons why that's the case, the response rate of firms to that survey has really plummeted, and so the quality of data is not what it used to be, and that has manifested as a lot of volatility.

[00:03:06] James Athey: What we saw in terms of the headline on Friday was not necessarily that far from expectations, though certainly the pace of job growth was slower than the market had been hoping for.

[00:03:17] James Athey: But what really focused attention was the two month revision, so over 250,000 jobs lost as per the revision from Friday, which covers May and June employment report. And that's the sort of thing we tend to see around inflections in the labor market.

[00:03:34] James Athey: Now, on the bond team here at Marlborough, that's something we've been talking about for quite a while.

[00:03:39] James Athey: These revisions are not in isolation. We've seen a number of negative revisions over the last several months, but this one was particularly large actually outside of a recession, this is the largest two month negative revision since 1968. So significant in a historical context, significant in a statistical context.

[00:03:59] James Athey: And does raise the potential, I think, in investors' minds that the labor market might be heading into a more steep decline. And of course, as you say, equity markets didn't like that, so we did see falls in equity markets.

[00:04:12] James Athey: Bond markets, of course, this is better news for bond investors. So we saw bond prices rising and therefore yields falling quite strongly, particularly at the front end of the yield curve, which is more sensitive to fed policy.

[00:04:27] Andrew Shaw: Thank you very much for that and interested in numbers coming outta the US.

[00:04:31] Andrew Shaw: Something that has played on investors' minds over the last few weeks and months has been dollar strength. Can you just talk around your current thoughts around the dollar and how it's reacting to our data?

[00:04:42] James Athey: Yeah, so we are actually on the bearish side for the US dollar. That's a view and a position that we've held for some time.

[00:04:49] James Athey: There's lots of reasons why people seem to be talking about a decline in the US dollar. We would particularly point to the potential for global investors to reduce US exposure, particularly via increased currency hedging. That for us is one of the main thrusts behind our dollar bear story.

[00:05:09] James Athey: What we've seen over the last few weeks, however, is a bit of a bounce, to be honest with you, Andrew, I don't think there's much to say beyond the fact that a lot of investors had got very bearish on the dollar very quickly, and as often happens in markets when that happens, that can lead to these sort of reversals as particularly hedge funds and faster moving investors are forced to manage risk and and stop out of positions when they start to go against them.

[00:05:35] James Athey: So that seems to have now run its course, and particularly after payrolls on Friday, which as I said, saw yields decline quite precipitously. That also brought back dollar weakness and we saw a fairly large decline in the dollar, particularly versus currencies like the Euro and the Japanese Yen. So from here the data will matter, but we suspect we will see a resumption of that dollar decline from this point.

[00:05:59] Andrew Shaw: Well, thank you very much for your insights today, James. Looking ahead this week, we've got the Bank of England who are expected interest rates on Thursday and earning season continues in the US with the likes of Palantir to Pfizer, AMD, Disney, and McDonald's all reporting.

[00:06:15] Andrew Shaw: That's it from us this week. Thank you very much everyone, have a great week.

[00:06:18] James Athey: Thanks, Andrew.