06/10/25: AI optimism, healthcare tariffs & US government shutdown

Monday Espresso Podcast - 6th October 2025

[00:00:00] Sarah Todino: Good morning. It's Monday the 6th of October. I'm Sarah Todino, Assistant Portfolio Manager at Marlborough, and I'll be running through some of the main news from last week with Andrew Shaw, our fixed income and US equity analyst. Good morning, Andrew.

[00:00:13] Andrew Shaw: Morning, Sarah.

[00:00:15] Sarah Todino: Broadly positive week for global markets with a number of indices reaching record high levels, equity markets rallied as we saw investor relief over tariffs in the pharmaceutical space, and renewed optimism in AI.

[00:00:27] Andrew Shaw: Yeah, the S&P 500 and the NASDAQ both hit record highs, and that was along with the FTSE 100 in the UK. US markets were driven by strength in the AI trade and healthcare stocks. Pharma stocks did rally after Pfizer struck a deal with Donald Trump's administration, and that was to offer discounted drugs via new federal website.

[00:00:47] Sarah Todino: Yeah, so investors now think that pharmaceutical tariffs may be lower than initially thought. So that was a big relief for the sector. And you mentioned that tech had a strong week as well.

[00:00:57] Andrew Shaw: Yeah. The tech sector outperformed, again, Nvidia, AMD, and Intel stocks all had a positive week, which was partially due to open AI raising $6.6 billion in a share sale, which now values the company around $500 billion.

[00:01:12] Andrew Shaw: OpenAI also announced a partnership with some South Korean chip makers, which was great for sentiment in the AI and semiconductor space. And I mean, we mentioned the NASDAQ hit in all time highs, but in Europe as well, the rallies driven the STOXX 50 and the STOXX 600 to fresh record closes as well. So equity markets, are hitting all time high, both this side and the other side of the atlantic.

[00:01:35] Sarah Todino: So despite these positive returns, investors are still keeping an eye on the US government shutdown. So the federal government entered its first shutdown in nearly seven years as Republicans and Democrats failed to reach a temporary funding deal. So for anyone unfamiliar, a shutdown happens when Congress fails to pass funding bills leading to a pause in non-essential federal operations.

[00:01:58] Sarah Todino: So the last one we had was in 2018. It lasted about 35 days and it delayed economic data releases, but markets did recover quickly as soon as it ended. Goldman Sachs are currently estimating that a reduction of approximately 15 basis points in Q4 GDP for each week of the shutdown, and that's assuming that 40% of federal employees are furloughed and all federal workers experience delays in wages.

[00:02:25] Andrew Shaw: Exactly. Historically, such events have had limited influence on financial markets, however, the primary concern people is the disruption of economic data releases, particularly the September employment report, which was supposed to be released last Friday.

[00:02:41] Sarah Todino: So turning to Europe, the Eurozone unemployment rate ticked up to 6.3% in August, slightly above expectations, but what we need to remember here is it's still historically low.

[00:02:52] Sarah Todino: So inflation data was mixed this week. Core CPI. It's held steady at 2.3%, so it's been at this level for five months now. Preliminary data suggests that headline inflation, and that's inflation that includes volatile food and energy prices edged up to 2.2%, and that was 2% in August. And the reason for that increase was due to energy prices.

[00:03:15] Sarah Todino: So the ECB will be watching this closely, especially as growth momentum softens a little.

[00:03:21] Andrew Shaw: And that's softens echoed back in the UK as well. I mean, GDP grew 0.3% in Q2, which was actually in line with expectations, but definitely slower than the 0.7% growth we saw in Q1. As previously mentioned, the FTSE 100 increased to an all time high of 9,475 last Friday, and over the last four weeks, the FTSE gained 2.78%, and over the last 12 months, it's actually increased 14.4%.

[00:03:49] Andrew Shaw: Slightly overshadowed by, the S&P in the US, but still strong gains for the FTSE 100. I mean, all eyes at the moment in the UK are on Rachel Reeves to see what her autumn budget brings at the backend of November.

[00:04:01] Sarah Todino: So Andrew, what are we looking out for this week?

[00:04:04] Andrew Shaw: Yeah, we'll be watching out for retail sales in Europe with the UK house price data.

[00:04:08] Andrew Shaw: There's a speech as well from the Federal Reserve chairman, Jerome Powell. The government's currently shut down this week. It may well open again and we'll get that jobs report number. The weight of the data from the US is seen as all kind of important, and there's a lot of eyes on that, so we'll see if we can get that data at this point.

[00:04:27] Andrew Shaw: One thing to note is that it feels like we've just ended earning season for Q2, but this Thursday, Delta Airlines are reporting their Q3 numbers, which kicks off Q3 earning season next week we've got all the major US banks.

[00:04:42] Sarah Todino: Thank you, Andrew, and thanks to everyone for listening and as always, do let us know if you have any questions.

[00:04:47] Sarah Todino: We'll be back next week with more insights.