FTSE 100 continues to outperform

Source: Bloomberg

Market moves

Watch the latest episode of Market Moves where our Chief Investment Officer Patrick Farrell discusses the key themes shaping markets this month.

Middle East

Relations between Washington and Tehran remain fraught this week after US president Donald Trump escalated pressure on Iran by threatening what he described as an economic "D-Day" if Tehran failed to meet US demands, while at the same time leaving the door open to a negotiated settlement. The increasingly confrontational rhetoric came as the fragile 60-day ceasefire between the two sides expired on Monday without a comprehensive agreement. Iranian officials insisted the deal was not dead but merely in a "coma", signalling that diplomacy could still be revived if Washington agreed to key Iranian demands. 

Despite the tougher language, both sides continued to indicate a willingness to negotiate, with US officials reporting some progress in talks and Iran suggesting it remained open to a diplomatic resolution. However, tensions remained high, particularly around the Strait of Hormuz and broader regional security concerns, underscoring the gap that still exists between the two countries even as they seek to avoid a renewed military confrontation. Oil prices roseas a result, with the benchmark Brent crude contract rising above $93 a barrel at one point before easing slightly. It gained 5.8% over the week

US Treasury Secretary Scott Bessent urged China to join Washington’s latest efforts to economically pressure and isolate Iran after negotiations to reopen the Strait of Hormuz and end the six-month conflict collapsed. “Keep in mind, the Chinese get 50 per cent of their energy from the Gulf. So, it would do them a big service to get with the programme,” Mr Bessent said. He also noted that “many conversations are best to have in private”, underscoring the sensitivity of the issue ahead of Chinese President Xi Jinping’s expected visit to Washington in September.

Other geopolitics

Mr Trump stepped back from his threat to impose 50% tariffs on a range of Canadian imports this week after Washington and Ottawa reached a tentative trade at the eleventh hour. The tariffs, which would have covered roughly $20bn of Canadian exports including alcohol, dairy products, furniture and industrial goods, were suspended for three days to allow the finalisation of deal documents. Trump said the two countries had reached an agreement "subject to the finalisation of documents", while Canadian prime minister Mark Carney said "substantial progress" had been made although some issues remained unresolved. 

Economics

The minutes of the Federal Reserve's (Fed’s) July 28-29 meeting revealed a significantly more hawkish policy debate than expected, with the Federal Open Market Committee voting 9-3 to keep interest rates unchanged at 3.5%-3.75% – the three regional Fed presidents dissenting in favour of an immediate quarter-point rate increase. The minutes showed that many officials believed further tightening might be necessary if inflation failed to fall, with concerns focused on tariff-related price pressures, higher energy costs linked to the Middle East conflict and strong demand associated with AI investment. Policymakers described the inflation outlook as "highly uncertain" and skewed to the upside, while generally viewing the labour market as stable and resilient. This all suggests that the Fed remained more concerned about inflation than growth and that a rate rise later this year was a realistic possibility. However, weaker economic data since the meeting has complicated that outlook. 

UK inflation surprised on the upside in July, with CPI accelerating to 2.9% from 2.6% in June, driven by higher housing and household services costs and a pickup in goods inflation. Core CPI was unchanged at 2.6%, while services inflation eased slightly to 3.4%, suggesting underlying price pressures remain contained despite the headline increase. Producer price data were more encouraging, with factory-gate inflation slowing to 3.1% from 3.5% and input cost inflation falling sharply to 4.9% from 7.4%, helped by lower crude oil prices. The combination of firmer consumer inflation but easing pipeline cost pressures suggests inflation is proving sticky but is not accelerating broadly across the economy. For the Bank of England, the data is unlikely to derail expectations for further gradual interest-rate cuts, although the stronger-than-expected CPI reading may reinforce a cautious approach and reduce the likelihood of rapid policy easing.

UK retail sales weakened in July, with sales volumes falling 0.5% month-on-month, slightly worse than economists had expected. A sharp 2.7% decline in clothing and footwear sales and a 3.6% drop in online retail sales more than offset continued strength in food spending. Retailers said some demand had been pulled forward into June by earlier-than-usual promotions, helping explain the payback in July. Despite the monthly decline, the broader trend remained positive, with retail sales volumes rising 1.1% over the three months to July compared with the previous three-month period and up 1.6% year-on-year. 

Company news

BHP reported a strong set of full-year results, helped by record iron ore production, resilient commodity prices and the growing contribution of its copper business. Copper became BHP's biggest earnings driver for the first time, reflecting strong production and prices as the company positions itself to benefit from rising demand linked to electrification and AI infrastructure. Management unveiled a final dividend of 99 US cents a share, the company’s largest in four years. It also highlighted its pipeline of copper projects in Chile, Australia and Argentina, alongside continued investment in the Jansen potash project, as key drivers of future growth.

Analog Devices reported record third-quarter results as demand for its chips strengthened across industrial, data centre and AI-related applications. Revenue jumped 40% year-on-year to $4.02bn, while adjusted earnings per share rose 68% to $3.45, both ahead of expectations. Management issued a record outlook for the fourth quarter, forecasting revenue of about $4.3bn, signalling confidence that the current growth momentum will continue.

Earnings reports from US retailers suggested the US consumer remains surprisingly resilient but is becoming more selective and value conscious. Walmart's results were strong and suggested consumers are still spending, particularly on essentials, but are increasingly focused on convenience and value. Its shares, however, fell sharply after the statement as revenue growth slowed. Target's results point to a broader improvement in discretionary spending than many investors expected, with all six major merchandise categories growing, including beauty, food and general merchandise. That suggests consumers are not simply buying necessities but are willing to spend on non-essential items when they perceive value. Home improvement chains paint a slightly more cautious picture. Home Depot reported positive comparable sales growth and said customers continued to undertake smaller projects, but there was little evidence of a rebound in large renovation spending. Lowe's echoed that trend. The overall message is that the US consumer is not retrenching, but is behaving rationally in response to higher borrowing costs and economic uncertainty. Households are still spending, supported by employment and wage growth, but they are prioritising value, trading carefully between retailers and remaining reluctant to commit to big-ticket home-related purchases. 

Chinese e-commerce and cloud computing giant Alibaba reported a solid first-quarter, driven by rapid growth in its cloud computing and AI businesses. Alibaba Cloud's external revenue surged 45%, its fastest growth in 22 quarters, while revenue from AI-related products more than doubled for a twelfth consecutive quarter, highlighting strong demand for AI infrastructure and services. However, the group's aggressive investment in AI weighed on profitability. The core ecommerce business remained resilient. Management said the company has reached an "AI commercialisation inflection point" and expects cloud growth to accelerate further.

Deere & Co reported stronger-than-expected third-quarter results, helped by resilient demand in its construction, forestry and smaller agriculture equipment businesses. Demand was weaker for large agricultural machinery. Management said disciplined execution and stable US market conditions supported performance despite softer markets in Brazil and Europe. Reflecting the stronger quarter, Deere raised its full-year net income guidance to $4.75bn-$5.0bn and said it believes 2026 will mark the bottom of the current agricultural equipment cycle, citing improving order trends, healthier used-equipment inventories and growing adoption of precision agriculture technologies. 

Carlsberg reported solid first-half results, driven by growth in soft drinks, and alcohol-free beverages. Management highlighted quicker-than-expected delivery of synergies from its Britvic acquisition. It narrowed its full-year guidance towards the upper end of its previous range and now expects organic operating profit growth of 4-6% in 2026.