With apologies to the reader who requested that I defer sending the bulletin out until the evening due to its highly soporific value, I’m afraid you will have to wait awhile for your Snooze.
Chancellor John Healey has announced the date of his first Budget will be Wednesday, 28 October. So that gives us 89 days of speculation and worry. Try not to. We will bring you all the news as and when we get it.
In a move that was widely predicted, the Bank of England has held interest rates at 3.75% for a fifth consecutive time. Six policymakers voted for a hold and three for a rise, which is a slight shift from the previous meeting when the vote was 7-2 in favour of a hold.
That Old Black Magic of diversification prevailed again this week as various goings on that the commentators will cover later, continued to put the squeeze on US share prices had the opposite effect as money crossed the pond (figuratively!) and bolstered the FTSE 100 Share Index to its highest ever level this week touching just 11 points below the 11,000 mark.
All is not lost in the US as David E. Rovella at Bloomberg reports:
For all the talk of an artificial intelligence bubble that could take down the global economy, the biggest players in the space are spending — and planning to spend — like there’s no chance it can happen. The four largest companies in the data centre race have committed nearly $2.4 trillion over the coming years, pointing to a massive bet on AI infrastructure.
Tech’s big debate this year has been whether the hundreds of billions of dollars being spent on AI server farms will really pay off. Alphabet and Amazon have each tipped into negative free cash flow, with Meta expected to follow soon. Still, all the companies signalled increased spending plans during their recent earnings reports, generally citing a need to capture massive demand for AI computing power.
On Thursday, Amazon Chief Executive Officer Andy Jassy argued that his company was essentially going through an accelerated version of the first Amazon Web Services cloud unit buildout, where steep spending in early years led to great returns later on. Whether that happens with AI is the multitrillion-dollar question.
Fear & Greed – A Market Update: Q3 2026 from RBC Brewin Dolphin
As we enter the third quarter of 2026, we find ourselves in a market that has travelled an extraordinary distance in just three months. April’s extreme panic, where the Fear & Greed Index plumbed depths not seen in years, has given way to a more measured, cautious optimism. The journey from 16 to 40 on the Fear & Greed scale represents a significant recovery. Yet this recovery masks deeper complexities: a market balancing the transformative promise of artificial intelligence against persistent economic headwinds, navigating resource scarcity while dreaming of abundance, and grappling with a world increasingly fragmented by geopolitical tensions.
Where are we at the moment?
What does this mean? Simply put, fear remains the dominant emotion driving markets, but it is a manageable fear, the kind that comes with opportunity rather than panic. Investors have moved past the paralysis of extreme fear and into a more rational assessment of risks and rewards.
What has caused this improvement?
Investor sentiment has improved significantly due to several converging factors: AI investments are demonstrating tangible commercial value, with mega-cap technology firms’ hundreds of billions in infrastructure spending beginning to generate measurable corporate earnings and productivity gains, marking a potential transition from AI infrastructure spending to actual financial results across sectors. Geopolitical tensions, particularly in the Middle East, have eased from their April peak and corporate earnings have recovered after early-2026 disappointments. Additionally, stable interest rates and continued Government spending have provided economic stability and a market floor, boosting investor confidence that any deterioration is being actively managed.
But what about inflation, isn’t that an issue?
Despite some moderation from 2025 levels, inflation does remain elevated and sticky. Central banks, including the Federal Reserve and the Bank of England, have maintained hawkish stances, with expectations for “higher for longer” interest rates. For the UK specifically, KPMG forecasts inflation peaking above 3.5% in Q3 2026, with only a single Bank of England rate cut expected in the full year. This persistent inflation will hit consumer spending and squeeze corporate margins.
Aren’t governments also facing tough decisions with regards to money?
Yes, governments face mounting fiscal pressures. Ageing populations, rising healthcare costs, and previous pandemic-related spending have left many developed nations with elevated debt levels. This constrains the room for additional spending and raises questions about the sustainability of government finances. The UK, in particular, faces economic sluggishness and limited room to maneuver, something that our new Prime Minister will have to grapple with as he takes office.
What is wrong with the UK-specifically?
The UK economy is struggling relative to other developed markets. Typical forecasts are for UK GDP growth to slow to around 0.7% in 2026, well below historical averages and below growth in the eurozone and United States. High energy costs, business investment caution, and household spending weakness are all headwinds specific to the UK. This dynamic makes domestically focused UK equities less attractive on a relative basis, but we can look at the international businesses listed in the UK and also direct investments overseas for clients.
OK, but where are opportunities emerging?
Several compelling investment themes are emerging across global markets: investing in AI infrastructure bottlenecks; power generation, semiconductors, data centres, and computing infrastructure, offers attractive fundamentals given years of excess demand over supply. The ‘picks and shovels’ of the AI gold rush. Fixed income now presents meaningful opportunities, with short- to medium-term bonds offering attractive yields. Defence and security sectors are benefiting from geopolitical fragmentation and rising European defence budgets, creating a durable investment theme. Additionally, areas like real estate, infrastructure, private equity, and private credit, offer diversification and exposure to long-term structural trends. Together, these themes offer growth and income opportunities across differing asset classes and geographies.
What should investors be watching?
As 2026 progresses, investors should closely monitor whether AI investments are generating tangible corporate profits, as disappointing earnings could reverse recent market gains. Inflation surprises and central bank policy shifts will significantly influence market movements, while geopolitical tensions, trade negotiations, and supply chain resilience in semiconductors and energy remain critical risk factors.
Isn’t the market too volatile at present?
Historical perspective is valuable: despite markets declining roughly 30% of the time, the MSCI World Index has delivered over 6,000% total returns across five decades. Quality companies with solid fundamentals and real assets have consistently demonstrated resilience through difficult periods, and disciplined, diversified portfolio construction across equities, fixed income, alternatives, and geographies can meaningfully reduce volatility while capturing long-term growth opportunities.
In summary?
We have travelled from extreme fear to cautious optimism in the span of three months. This recovery is not unfounded; there are genuine positive developments driving it. Yet this is not a moment for complacency. The world is navigating a fundamental transition: from AI 1.0 infrastructure spending to AI 2.0 productivity gains; from resource scarcity to potential abundance; from globalisation to fragmentation. Investors must balance participation in genuine growth opportunities with vigilance about persistent headwinds.
The outlook for the remainder of 2026 remains constructive, but not without risks. In an uncertain world, a well-diversified portfolio, both geographically and by industry, remains the most sensible strategy. This, coupled with a focus on the kind of blue-chip companies that can demonstrate robust characteristics, should continue to provide some protection from the inevitable changes ahead.
Stay invested with discipline. Remain vigilant about the risks. And remember: the future belongs to those who hold their nerve through volatility and maintain a long-term perspective.
Market Commentary
The Tatton Weekly, attached covers the following topics:
- Learn to make your mind up – The new chair of the US Fed’s new policy of explaining nothing annoyed many investors, in a week where the Middle East conflict expanded and AI rumbles on.
- Growing pains in corporate credit – The difference in yields between government and corporate bonds is growing – a worrying sign of a slow down or, in today’s global economy, an indicator of growth?
- Who’s afraid of consumer confidence? – Consumer confidence surveys have trended into despondency in the US and elsewhere over recent years – is this economic tool giving us the right read in today’s highly polarised political society?
In a case of Double Trouble, the latest Rathbones Weekly Digest, Head of Market Analysis John Wyn-Evans looks at why markets are still waiting to be called, with bonds offering more cushion than before and investors rotating away from tech rather than heading for the exits.
He argues that bonds are starting from a more forgiving place after years of rising yields, though they are not immune to inflation or fiscal nerves. Meanwhile, tech’s shine has dulled as investors question whether the vast sums being poured into AI will deliver the promised returns.
But this is not a market in distress. Banks are helping keep the broader picture steady, and investors may have to sit tight while AI proof points, geopolitics, inflation, and the US mid-term elections play out.
Duff, Duff, Duff
Not The Movies, but exciting news in the UK’s biggest soap opera …
* Cue music *
Source: 7IM
A new Prime Minister! A new Chancellor! A new Foreign Secretary! The same Home Secretary! Andy & John & Ed & Shabana! Plus, a whole new supporting cast …
If the early indicators are anything to go by, there’s going to be a certain soap opera-ish quality to this government say the team at 7IM.
And just like the murders and divorces and car crashes in Albert Square (or Coronation Street or the Yorkshire Dales) the changes and the speeches and the policy nuances can suck you in. With a soap though, you’re back in the room once you turn the TV off – something that we haven’t been able to DO with UK politics recently.
So, this is our friendly reminder, that while the media cares about characters, the markets care about context. It’s not to say that politics doesn’t matter, or move markets – as we saw with Liz Truss’ brief moment in the spotlight, or Brexit.
It’s just that MOST of the time, the important things for returns are happening everywhere else but Number 10: economic growth, inflation, interest rates, technological progress and the occasional global crisis. Which is why returns don’t look too much different between Labour and Conservative over the decades:
Source: 7IM/Refinitiv
Since the Second World War ended, Labour have been in government for 32 years, and the Conservatives for 49 years. Looking at annualised returns of the FTSE All-Share throughout each government’s time in office, there’s not much to choose. 11.4% for Labour, and 10.5% for the Conservatives.
Any new government inherits the same context as the previous one – and manifestos suddenly go out of the window. While the cast might have changed, the backdrop doesn’t. Albert Square is still Albert Square.
So, over the next few months (until the Budget, probably 😢), try to switch the soap opera off, especially when thinking about portfolios.
Try and Hold On to It
Inheritance tax (IHT) has long been dubbed Britain’s most-hated tax, despite only affecting a small chunk of the population. That’s changing though – more people are on track to be hit by the 40% levy in coming years. Rising house prices and frozen inheritance tax thresholds mean more families have and will be brought into the IHT net each year, known as fiscal drag. The issue is set to worsen when pensions are included in the estate for inheritance tax from April 2027.
Confirmed by reports in MoneyWeek, in the tax year 2023/24, 4.72% of UK deaths resulted in an inheritance tax charge, according to latest HMRC data – an increase of 0.10 percentage points to the previous year. The proportion of estates paying inheritance tax is now the highest it has been since 2006 to 2007, when it was 5.96%.
A total of 30,400 deaths in the UK led to an IHT charge, with the average bill for IHT-paying estates standing at £231,000. Inheritance tax receipts in that period reached £7 billion, up 5% compared to the previous year.
Inheritance tax raised £8.4 billion in 2024/25 for the taxman, the Office for Budget Responsibility (OBR) said and expects this to increase to £14.7 billion in 2030/21 due to factors such as the fiscal drag, the £2.5 million cap on 100% agricultural property relief and business property relief which came in in April 2026, and making pensions as part of an estate.
Meanwhile, HMRC has forced families to stump up an extra £1.36billion following investigations into underpaid inheritance tax over the past five years, new figures show.
Suspected errors, omissions or under-valuations of assets can prompt deeper scrutiny of an estate and lead to higher bills as well as interest on late payments and penalties. ‘HMRC has substantial investigative powers and will check a range of sources to build a picture of the deceased individual’s financial affairs,’ warns NFU Mutual, which obtained the figures on the money recovered via a Freedom of Information request.
This might be exacerbated by the newly elected Labour government seeking options to raise roughly £18 billion for adult social care, we do not know.
Whilst Andy Burnham stated no concrete funding decisions will be finalized until the accelerated Baroness Casey social care review concludes next summer, the resurrection of his 2009 “national care levy” idea has sparked intense debate. The government is reportedly weighing two primary financial mechanisms:
A 10% Flat Levy on Estates: A tax on all estates upon death to replace or build on top of inheritance tax.
B 1.8% Social Insurance Levy: A mandatory income contribution for workers over the age of 34 earning over £6,240.
Fun fact from Quartet Investment Managers
Microsoft added around $450 billion in market value in a single trading session after its earnings results this Wednesday—believed to be the largest one-day increase in market capitalisation by any company in history. It dwarfs the City even more than Kitten Kong.
Miscellaneous
Billions of pounds are sitting in premium bond accounts with no activity, a Freedom of Information request has revealed says Tara O’Connor at FT Adviser. The data, obtained by Octopus Money, revealed more than £6.3bn has been held in accounts with no deposits, withdrawals, or updated contact details for the past decade. Tom Francis, head of personal finance at Octopus Money, said: “Premium Bonds hold a special place in British saving culture, and for many people they were a childhood gift rather than a conscious financial decision, which is why many accounts go untouched for years. “The problem is that if you’re not checking in, not only are prizes potentially missed, but you’re probably not comparing them against what else is out there.” The data reviewed by Octopus also found that of the 510,061 premium bond accounts opened during the 2025-26 financial year, 310,913 did not win a single prize before the end of the financial year.
AJ Bell has urged new chancellor John Healey to commit to a Pension Tax Lock ahead of his first Budget. The investment platform warned that speculation over pension tax changes prompted savers to withdraw an estimated £10bn more than usual from their retirement pots. The firm has written an open letter calling on Healey to commit to retaining the current tax-free cash allowance and pension tax relief reports Momodou Musa Touray, chief reporter at Money Marketing. It said greater certainty would stop people making long-term retirement decisions based on rumours. AJ Bell’s analysis of Financial Conduct Authority (FCA) data found tax-free cash withdrawals reached £18.3bn in the 2024/25 tax year. That compares with an average of £7.9bn a year over the previous five tax years. The platform said the figures indicate an additional £10bn was withdrawn as speculation grew over potential changes to tax-free cash ahead of the 2024 Autumn Budget.
Private banks are increasingly becoming more “cookie-cutter” as they scale their business, Rob Agnew, head of private office at Isio has argued. Speaking to FT Adviser, Agnew said: “If you’re running a big private bank, your main engine of revenue generation is to scale your discretionary business . . . It does become a product-led discussion.” Agnew, who previously worked at Deutsche Bank and Barclays, having served in the Royal Navy, added he thought there was a “lot of buyer’s remorse” among private bank clients. “Some people are quite happy for various reasons, either naively or willingly. But from my experience a lot were very unhappy with the outcome,” he said. Now that is taking the biscuit! [Ed – *groan*]
Today (31st July) is the deadline for the second payment on account for your tax bill (if you make advance payments).
NS&I has today increased interest rates for savers, with new Issues of its 1, 2, 3 and 5-year fixed-term British Savings Bonds – Guaranteed Growth Bonds (GGB) and Guaranteed Income Bonds (GIB). The new Issues are available to both new and maturing customers.
Congratulations to all the participants in the Commonwealth Games for a great spectacle albeit a somewhat curtailed one. Not quite the Winter Olympics but at least there were no signs of The Loch Ness Monster.
I was off to arrange to sell a minority stake in the bulletin. I don’t own it, I’m just the custodian, but that doesn’t seem to matter. However, that doesn’t seem such a good idea any longer so hopefully you won’t feel the need to boycott it. I hope to catch up with you next time.