28/09/26: China US trade truce, Meta AI & UK borrowing figures

Monday Espresso Podcast - 28th September 2026

[00:00:00] Andrew Shaw: Good morning. Today is Monday the 28th of September. I'm Andrew Shaw, one of the Investment Analysts here at Marlborough. And joining me is Nick Warmisham.

[00:00:08] Andrew Shaw: Nick covers Asia, Emerging Markets and Japan. Nick, good morning.

[00:00:13] Nick Warmisham: Good morning, Andrew.

[00:00:14] Andrew Shaw: Three things today. First, right in Nick's wheelhouse, Chinese President Xi Jingping visited Washington last week.

[00:00:21] Andrew Shaw: Second Meta's new AI assistant, and why Amazon has shut the door on it and third closer to home the latest UK borrowing figures ahead of next month's budget.

[00:00:32] Andrew Shaw: But first, Nick, how did markets get on last week?

[00:00:35] Nick Warmisham: Well, for UK investors, the US led the way last week with the big technology companies doing particularly well.

[00:00:41] Nick Warmisham: The currency gave it a helping hand with the dollar strengthening against the pound. Asia outside Japan, and Emerging Markets also had a good week. And then closer to home it was a bit quieter with the UK and Europe fairly flat and Japan was an unusual one, the Tokyo market was shut from Monday to Wednesday for a run of public holidays, so it only traded a couple of days and ended mixed.

[00:01:02] Andrew Shaw: And the bond market was the thing unsettling people?

[00:01:05] Nick Warmisham: Exactly. When a government borrows money, it sells bonds which are essentially IOUs. The yield is the interest rate it pays a bit like a country's mortgage rate.

[00:01:17] Nick Warmisham: Last week, the rate the US government pays to borrow for 10 years hit it's highest since 2007.

[00:01:24] Nick Warmisham: Here, UK government bonds known as gilts fell in value, particularly the longer dated ones.

[00:01:29] Nick Warmisham: The root cause is inflation sticking around largely because of energy prices since the Iran war began. That's why America's Central Bank, the Federal Reserve, raised interest rates the week before and it signalled another raise could come before Christmas.

[00:01:45] Andrew Shaw: Right then. Thank you for that Nick. The big one, Xi Jinping in Washington with lots of pomp and ceremony, what actually came out of it?

[00:01:54] Nick Warmisham: Yep, certainly more ceremony than substance, which is what most Chinese watchers expected. The headline was that the US and China extended their trade truce. That's the deal struck last October, which brought tariffs back down from the eye watering levels of 2025. It was due to run out on the 10th of November and now runs out on the 10th of January.

[00:02:14] Andrew Shaw: Only two months though.

[00:02:16] Nick Warmisham: Yeah, that was the interesting bit. Many had hoped for six months or more. So the shorter extension suggests Washington wants to keep the pressure on.

[00:02:23] Nick Warmisham: The truce also keeps on hold China's restrictions on selling rare earths abroad. Rare earths are the specialist metals in everything from electric car motors to smartphones, and China controls most of the world's supply. So that's a powerful bargaining chip.

[00:02:38] Andrew Shaw: And the thornier issues.

[00:02:39] Nick Warmisham: No breakthroughs on Taiwan or Iran. Chinese government media said, Xi urged Trump to oppose Taiwan becoming independent. That matters to investors because Taiwan makes most of the world's advanced computer chips, the ones inside your phone and in AI data centres.

[00:02:56] Andrew Shaw: And how would this affect the investor and should they really care?

[00:03:01] Nick Warmisham: Because a US China bust up doesn't really stay in the US and China. It hits global trade and plenty of FTSE 100 companies earn much of their money overseas. The good news is markets took the summit calmly. As I mentioned, Asian markets outside of Japan had a good week and no news is good news here.

[00:03:19] Nick Warmisham: Last year, the two sides had tariffs of over a hundred percent on each others goods. Now they're talking about sharing warnings on AI related hacking.

[00:03:27] Nick Warmisham: Calm relations between the world's two biggest economies are valuable in themselves, especially if you hold Asian or Emerging Market funds.

[00:03:34] Andrew Shaw: Thanks for that, Nick.

[00:03:35] Andrew Shaw: Let's move to Tech. Meta the owner of Facebook and Instagram launched an AI assistant called Muse last week, and it's becoming a big story.

[00:03:44] Nick Warmisham: Muse is what is called an AI agent. So rather than just answering basic questions, it actually does things for you. Booking appointments, doing your shopping, even paying at the checkout. It shot to the top of the app store chart and Meta's share price jumped sharply on the back of it.

[00:03:59] Andrew Shaw: And then Amazon decided to pull the plug.

[00:04:01] Nick Warmisham: Exactly. Amazon started blocking Muse from shopping on its website, citing security concerns. But there's also money reasons behind Amazon's decision there too. Amazon makes billions from adverts shown to people browsing its sites. And if an AI does that browsing for you, you never actually see them.

[00:04:17] Nick Warmisham: Alphabet, Google's parent company also fell midweek as investors wondered whether people will still Google things if an AI assistant does the job for them.

[00:04:26] Nick Warmisham: Meanwhile, Shopify, which runs the websites behind millions of independent shops, opened its doors to Muse. It makes money on each sale rather than on adverts, so more shoppers of any kind suits that site fine.

[00:04:38] Andrew Shaw: And this matters closer to home than people might think. If you've got a global fund or workplace pension, there's a good chance you have exposure to these companies. There'll be winners and losers even among the giants, which is why we think being selective matters more than buying anything with a label AI.

[00:04:52] Andrew Shaw: So finally, closer to home UK borrowing figures came out on Tuesday. Not pretty.

[00:04:57] Nick Warmisham: No, not pretty. The Office four national statistics. The body that measures how the UK economy is doing, said the government borrowed £18.3 billion pounds in August. That's £3.5 billion more than forecasted. And the second highest August on record behind only the pandemic back in 2020.

[00:05:17] Nick Warmisham: Spending is rising faster than tax is coming in partly because inflation pushes up the state pension and benefits and the interest the government pays on its debt hit £8.8 billion pounds, a record for August.

[00:05:30] Andrew Shaw: Which links back to what's happening with gilts.

[00:05:33] Nick Warmisham: Exactly. UK government borrowing costs hit their highest in nearly 20 years earlier this month.

[00:05:39] Nick Warmisham: The more the government pays in interest, the less room the Chancellor has in next month's budget. The accountancy firm, KPMG, reckons higher borrowing costs have already knocked around £9 billion pounds off his room for manoeuvre.

[00:05:52] Andrew Shaw: Yeah, and this isn't just a Westminster story, what the government pays to borrow or feeds through to mortgage rates, so it touches household finances directly.

[00:06:01] Andrew Shaw: Before I let you go, Nick, what should listeners look out for this week?

[00:06:05] Nick Warmisham: Well, closer to home Wednesday brings the final reading of UK growth between April and June. And on the same day there's Japan's Tankan survey the Bank of Japan's quarterly checkup on how businesses are feeling.

[00:06:18] Nick Warmisham: Plus, China's factory surveys before Chinese markets close for golden week. A week long national holiday in China and in the US Friday's jobs were reports, which tell us how many people were hired last month.

[00:06:31] Andrew Shaw: Great, thanks Nick. So to summarise, US shares led the way for UK investors helped by a stronger dollar. The Trump Xi summit was heavy on handshakes and light on breakthroughs, but calmer relations are good news for global trade and Asian markets. And UK borrowing is running hot leaving the chancellor with a, tight squeeze ahead of the budget.

[00:06:53] Andrew Shaw: As always, do reach out if you have any questions. Wishing you all a great week ahead.