Logic Monday Espresso Podcast

Monday Espresso Podcast - 25th August 2025

[00:00:00] Nathan Sweeney: Good morning everybody. It is Monday the 25th of August, and today I'm pleased to be joined by Rory Dowie, Global Equity Portfolio Manager here in the Marlborough Multi-Asset Solutions team. Good morning, Rory.

[00:00:12] Rory Dowie: Good morning, Nathan.

[00:00:13] Nathan Sweeney: So Rory, let's start with a quick recap of how markets performed last week.

[00:00:19] Rory Dowie: So we had a slightly more mixed week for markets last week. The UK was probably leading the way. That was up about 1.5%. Europe was broadly flat whilst on the negative side, US gave back some of those gains that we've seen over the past couple of weeks and dropped about one point a half percent for the week.

[00:00:34] Rory Dowie: Japan and Emerging Markets are off about 1 to 2% as well. So kind of a mixed market performance kind of across the major markets last week.

[00:00:42] Nathan Sweeney: Really good to see UK equities performing well. But just looking at some of the news we had over the week, we had the Jackson Hole Symposium. So for anyone who doesn't know what that means, basically you have a meeting for central bankers from around the world in the small town of Jackson Hole in Wyoming in the US.

[00:01:02] Nathan Sweeney: So Rory, what was the key news coming out of that meeting?

[00:01:05] Rory Dowie: Yeah, perhaps no surprise. One of the key themes coming out of the symposium this year was central banks bankers reiterating the need for monetary independence, and I think really that's on the back of Trump continuing to pressure the Fed officials.

[00:01:18] Rory Dowie: Obviously Jerome Powell's been in the fire over the last couple of the months, but actually this week it was Federal Reserve Governor Lisa Cook's turn. Trump was pressuring her to resign. What do we mean by monetary independence? Really, it's basically that central bankers and government officials remain independent.

[00:01:34] Rory Dowie: Central banks have a dual mandate. They want healthy economic growth and low and steady inflation. So they basically want that economic growth and then low inflation on the other side of that. And actually, when you get governments interfering, clearly governments have different priorities. So we really need to have that, independence there.

[00:01:50] Rory Dowie: And I think this is on the back as well of the data we've had over the last couple of weeks. On the economic side of it, we've clearly had slightly weaker labour market data, but then obviously on the inflationary side of things, we spoke just last week about the hotter than expected PPI numbers for July.

[00:02:05] Rory Dowie: So really, you know, the Fed is still stuck between a rock and a hard place really with, wanting to have a healthier economy, but then they also have inflation on the other side that they need to keep low as well. Ultimately what that means, in September, some market participants had been expecting a 50 basis point rate cut. Trump and Scott Bessent had been talking up, one to one and a half percent rate cuts.

[00:02:26] Rory Dowie: But what it probably means is we're going to be getting a 25 basis point rate cuts and Jerome Powell finished the week with his speech on Friday and really some of the comments there probably kind of confirm that we will probably be getting a 25 basis point rate cut in September. Not that kind of very hopeful 50 basis points that, some people had hoped for.

[00:02:45] Nathan Sweeney: Yes, and I do think it is really important for central bankers to stay independent, and we're obviously focusing on the data. So as we've seen, we've had some weaker employment data, and that'll be a key focus for t he Fed Jerome Powell from the Fed For the next couple of weeks, he'll be looking at the labour market to see what that means, but as Rory mentioned, you're fully expecting to see a 25 basis point cut, so that's a quarter percent cut in interest rates in the US in September.

[00:03:14] Nathan Sweeney: So speaking of data and data dependence, did we have any other data out during the week?

[00:03:19] Rory Dowie: Yeah. One data point to mention last week was German GDP. That is gross domestic product. That's essentially the value of all goods and services within the German economy being traded. Essentially, that is the German economy, and actually the German economy shrank by more than initially estimated over the second quarter of this year.

[00:03:37] Rory Dowie: And interestingly, that was due to weaker performance from manufacturers. And, what do I mean by that? Over the first quarter of this year, you saw US businesses demanding much more goods and services from Germany, and that was really some what we call pull forward demand to try and get ahead of those tariffs that Trump had announced.

[00:03:55] Rory Dowie: Actually, what you saw this quarter is that demand then rolled over a little bit, so that demand got pulled out of quarter two and into quarter one as they front ran some of those tariffs. So what that meant is GDP in Germany declined 0.3% for Q2 because of that manufacturing slump. And actually, interestingly, we saw lower investment in Germany, which was down 1.4% for the quarter as well.

[00:04:16] Rory Dowie: So those were the two kind of headlines really causing that sort of negative prints. You will obviously remember, or hopefully remember at the start of the year. European stocks were, you know, started the year very strongly. We had the announcements from the German government around defense spending packages and some other infrastructure packages, and I think as we were saying at the start of the year, and it kind of underpins our kind of slightly negative view on Europe as a whole in portfolios.

[00:04:40] Rory Dowie: There is a significant time lag often between these fiscal stimulus policy that the governments implements and actually when that affects the real economy. And I think what you are seeing here is that clearly we are still in that time lag and you are kind of getting a bit of the rollover in kind of what you've seen in tariffs.

[00:04:56] Rory Dowie: So I think that was a very interesting point out of Europe last week.

[00:04:59] Nathan Sweeney: Yeah, so some interesting points there on Europe, really. So obviously defense doing really, really well at the beginning of this year, but if you do have any sort of peace agreement between Ukraine and Russia, ultimately that should lead to less spending on defense from Europe.

[00:05:14] Nathan Sweeney: And you have to remember a lot of that money has been committed. It hasn't been spent yet. So that's something to watch out for and one of the reasons we're less optimistic on Europe at the moment. Let's talk about some of the other data we had, during the week. Was there anything else of note, any other numbers we should have been looking out for?

[00:05:33] Rory Dowie: Yeah, we're continuing to get towards the end of earning season in the US and I think, you know, one company I'd like to highlight, that reported last week was Walmart. The large US retail often gives us a very good barometer on consumer health within the US. Really, the headlines there was that it missed its earnings expectations and it sold off 5% on the day.

[00:05:51] Rory Dowie: But actually I just want to highlight a couple of moving pieces under the bonnet that were perhaps missed by that overall earnings miss. And actually it was on the revenue side of things. So actually revenue came in ahead of expectations and actually what was driving that, it was actually more store visits by US consumers.

[00:06:07] Rory Dowie: So more people have been going to Walmart stores. And actually what I thought was particularly interesting was that people are spending more when they go to stores as well. So you're getting more people going to Walmart stores and they're spending more. So that's actually quite a positive sign out of those earnings.

[00:06:21] Rory Dowie: I think also a theme that came out of the call when I listened to it back, management noting that consumer behaviour, even with the impact of tariffs because the tariff impact has been quite gradual. Sort of the behavioural adjustments you might expect have been slightly muted. So actually that kind of consumer performance came in ahead of expectations, and that's because those tariffs, because they've come in quite slowly into the Walmarts sort of prices of their goods and services.

[00:06:45] Rory Dowie: It's been relatively muted kind of consumer reaction. So I thought that was something worth highlighting.

[00:06:50] Nathan Sweeney: Thank you, Rory. Very insightful. And then lastly, what should we be looking at for the week ahead?

[00:06:55] Rory Dowie: So this week we have some economic data in the US we have housing data and inflation expectations, but for me, most importantly, probably Nvidia reporting on Wednesday after the bell, that will clearly give us a very good barometer on where we are in the AI CapEx cycle.

[00:07:08] Rory Dowie: And we'll be watching very carefully to see any management comments on potential pathways of future spend. I'd really highlight that Nvidia numbers on Wednesday, and we will try to fill you in next week on the update there.

[00:07:19] Nathan Sweeney: Definitely all eyes will be on Nvidia this week. But yeah, thank you Rory for joining me on the show this week.

[00:07:25] Nathan Sweeney: Really insightful as always. And to our listeners, you know, if you do have any questions, please do send them in. We'd love to bring them up for the show. Otherwise, have a great week and see what next week.