AFH Monday Espresso Podcast

Monday Espresso Podcast - 21st September 2026

[00:00:00] Rory Dowie: Good morning, today is Monday the 21st of September. I'm Rory Dowie, Portfolio Manager here at Marlborough. Delighted to be joined again by Andrew Shaw, one of our investment analysts on the team.

[00:00:10] Rory Dowie: Andrew, first things first, good morning.

[00:00:13] Andrew Shaw: Good morning, Rory.

[00:00:14] Rory Dowie: A big week for Central Banks, last week, three of the world's largest all met the Federal Reserve in America, the Bank of England here at home, and the Bank of Japan out further east.

[00:00:24] Rory Dowie: We also had UK inflation on Wednesday, so three topics today for us, American interest rates, UK inflation, and actually how stock markets are holding up through all of it. Andrew, before we get into that, how did markets get on last week?

[00:00:37] Andrew Shaw: It was a choppy one last week, Rory, but a much better finish than a start.

[00:00:41] Andrew Shaw: Shares fell early on and fell again on Wednesday after the Federal Reserve's decision. Then on Thursday, the oil price dropped back below a hundred dollars a barrel, and we had an upbeat update from Nvidia, the world's largest chip maker.

[00:00:55] Andrew Shaw: That gave American shares their strongest day since early August, and the FTSE 100 here rose over 1%.

[00:01:03] Rory Dowie: Let's start with the big one then. The Federal Reserve, the American Central Bank, they actually raised interest rates on Wednesday, Andrew. It's quite a significant moment, isn't it?

[00:01:12] Andrew Shaw: Yeah, it really is, Rory. They raised the main interest rate by a quarter of a percentage point. That's to a range of 3.75 to 4%.

[00:01:21] Andrew Shaw: That's the first rise in America since 2023. For three years, the direction has been downwards or flat, and that has now changed. It was also unanimous, which wasn't expected.

[00:01:32] Rory Dowie: And the reason is inflation. Andrew.

[00:01:35] Andrew Shaw: American inflation was 3.4% in August, and that's well above their 2% target, and the main culprit is energy.

[00:01:43] Andrew Shaw: The war in Iran has pushed fuel prices sharply higher, and diesel prices in America hit a record high last week. Kevin Warsh, the new head of the Federal Reserve, was clear that a central bank can't control the price of oil or groceries. However it can stop those higher costs spreading into wages and everything else.

[00:02:02] Rory Dowie: Yeah, that's a really important point there. A one-off jump in petrol prices is likely to wash through eventually. What central banks really fear is that jump becoming embedded i.e. workers are asking for more pay to cover the higher costs.

[00:02:15] Rory Dowie: Businesses will then be forced to raise prices to cover those higher wages and it goes round and round.

[00:02:20] Rory Dowie: This sort of spiralling effect raising rates is the tool for stopping that, and that's the action that the US Central Bank has taken. I guess, what's the outlook from here though, Andrew?

[00:02:30] Andrew Shaw: Well, 16 of 18 policy makers expect at least one more rise before the year is out and strikingly, they don't expect inflation back to 2% until 2029.

[00:02:42] Andrew Shaw: President Trump responded by calling for rates to be cut to 1%.

[00:02:46] Rory Dowie: Yeah, President Trump not changing his tune then he is been asking for lower rates for a little while, but clearly central bankers disagreeing with him. Again, that importance of the independence between the political party and the central bank.

[00:02:59] Rory Dowie: We did also have two other central banks moving as well. What was the latest?

[00:03:02] Andrew Shaw: Yeah, on Friday, the Bank of Japan raised its rate to 1.25% and that's a 31 year high. Japan spent decades with rates at or below zero trying to create some inflation, and now it has rather more than it wanted, largely because it imports nearly all of its energy.

[00:03:21] Andrew Shaw: And the Bank of England held here in the uk.

[00:03:23] Rory Dowie: Government borrowing costs moved too, the American 10 year government Bond yield actually touched 5% last week. That's the highest since 2007. You did do a pod a couple of weeks ago, Andrew, when I was away with James talking about the yields curve. So listeners, please give that a listen if you want to know more about that topic.

[00:03:40] Rory Dowie: But in plain terms, investors can now earn around 5% a year simply by lending to the American government. And actually that's a real competition for shares potentially.

[00:03:49] Rory Dowie: Closer to home then UK inflation on Wednesday. Andrew, what was the latest there?

[00:03:53] Andrew Shaw: The Office for National Statistics, that's the body that measures how the UK economy is performing, said prices in August were 3.1% higher than a year earlier, and that's up from 2.9% in July, a five month high and in line with what economists expected.

[00:04:11] Rory Dowie: And where is that inflation coming from Andrew?

[00:04:13] Andrew Shaw: It's almost entirely from the petrol pump. Petrol rose to 161 pence per litre and diesel to 182 pence per litre. Fuel is now 23% dearer than it was a year ago.

[00:04:26] Andrew Shaw: If we strip out energy and food, the picture is far calmer though. Core inflation was unchanged at 2.6%. Services inflation unchanged at 3.4% and food inflation unchanged at 1.3%.

[00:04:41] Rory Dowie: Yeah, and again, another really important point, this isn't broad based inflation. It's really an energy problem caused by the war in Iran.

[00:04:49] Rory Dowie: And how did the Bank of England respond then on Thursday?

[00:04:52] Andrew Shaw: Yeah, they held rates at 3.75%, and that was for a sixth time in a row, but the vote was split six to three with three members wanting an immediate rise to 4%, and the message was firmer than the decision. The bank now expects inflation to reach around 3.75% by the end of this year, and slightly above 4% in early 2027. Back in July, they thought it would peak at 3.2%.

[00:05:19] Andrew Shaw: Governor Andrew Bailey said openly that if conflict drags on, rates may have to rise.

[00:05:24] Rory Dowie: Yeah. Okay. So we'll hold from the Bank of England, but a warning attached there from the governor, Andrew Bailey. If this conflict drags on, he may be forced to raise rates.

[00:05:33] Rory Dowie: Equity markets have actually been holding up okay, slightly counterintuitively. Why is that? Why are equity markets holding up a bit better Andrew?

[00:05:41] Andrew Shaw: They are holding up better than most would've guessed, and Japan has been the standout by some distance. It's up around 30% this year in local currency terms.

[00:05:50] Andrew Shaw: America's up double digits. Europe and the UK both up high single digits. The laggards have actually been India and Hong Kong both slightly down. Worth saying that a lot of American return is in dollars, so for UK investors, the exchange rate changes what you actually end up with.

[00:06:08] Rory Dowie: So strong performance across markets then this year, what's actually been driving that, lifting the bonnet?

[00:06:13] Andrew Shaw: Profits, essentially. American company earnings grew 50% in the second quarter compared with a year earlier, and analysts expect around 27% growth in the third quarter of the year. That will be the eighth quarter in a row of double digit growth.

[00:06:29] Andrew Shaw: Companies are simply making a lot more money than they were, and so far that has outweighed the bad news.

[00:06:34] Rory Dowie: Okay, finishing up Andrew, what have our listeners got to look out for this week?

[00:06:38] Andrew Shaw: The biggest one is Thursday when President Xi arrives in Washington for a state
visit in a summit with President Trump. The two met last in Beijing in May.

[00:06:47] Andrew Shaw: Trade, and tariffs will be on the agenda along with artificial intelligence and China's grip on rare earth metals. Those are the materials that go into everything from electric cars to defence equipment.

[00:06:59] Andrew Shaw: Iran will be in the room too, given China is the largest buyer of Iranian oil.

[00:07:04] Andrew Shaw: On the data side, Wednesday brings the purchasing managers surveys from the UK, Europe, and America, and they're monthly surveys of businesses and the earliest read we get on how economies are performing.

[00:07:15] Andrew Shaw: Then on Friday we get the Federal Reserve's preferred measure of American inflation.

[00:07:19] Rory Dowie: Okay, so another busy week then Andrew for markets.

[00:07:21] Rory Dowie: Thank you very much for joining me and unpacking it as you always do to our listeners, if you've got any questions, please reach out.

[00:07:27] Rory Dowie: Wishing you all a great week ahead.