Market overview – Richard Carter, Head of Fixed Interest Research
Fears that the Federal Reserve’s independence is being eroded grew last week after US President Donald Trump announced that he would fire Fed governor Lisa Cook. The move, which Trump claims is due to Cook committing mortgage fraud, is the latest in a series of attempts by the US President to interfere with the central bank. Since the start of his second term, Trump has made numerous attacks on Fed chair Powell, in an attempt to get rate setters to lower interest rates.
Cook has refused to leave her position and is taking the fight to the courts in what could be a landmark ruling on the degree of influence the White House can exert on the central bank. Central bank independence has long been a cornerstone of stability for financial markets. Investors view a central bank that is able to set monetary policy solely in pursuit of its objectives — in the Fed’s case to promote stable prices (IE controlled inflation) and maximum employment — as a major positive and if this credibility is threatened by political influence, then they may demand some compensation. This could come in the form of higher bond yields, as investors want to be compensated for the increase in political risk.
Weekly economic announcements:
Last week the MSCI All Country World Index declined 0.4% (+14.7% YTD).
United States:
US stocks ended last week largely unchanged, falling 0.1% (+10.8% YTD). Small caps outperformed large caps for a third consecutive week, rising 0.2% (6.7% YTD). Tech stocks fell 0.2% (+11.6% YTD). While news of Trump’s latest attack on the Fed made the headlines, there was not a large, discernible reaction in the markets.
The biggest event on the week for equities was Nvidia’s latest earnings update. The results were solid, but not the blockbuster beat that some investors have grown accustomed to. Forward guidance excludes China sales but on the earnings call, management referenced a potential US$2bn-US$5bn in China revenue. The figures ex China are arguably a miss but if China is included then it’s more like a beat on expectations.
While China represented around 13 percent of Nvidia’s revenue in 2024, many investors now treat it as an optional add-back rather than a core part of the forecast. The broader AI story remains compelling. Hyperscaler CAPEX is expected to grow 50 percent this year and 15% next year, and we’re seeing growing momentum from sovereigns, enterprises, agentic AI, and physical AI applications like robotics and autonomous systems.
United Kingdom:
UK stocks underperformed last week, shedding 1.4% (+15.6% YTD). A relatively light economic calendar saw softening retail sales the only point of note. Volumes weakened for the 11th month in a row in August while shops raised prices by the most since the end of 2023, according to the Confederation of British Industry survey.
The UK 10-year gilt yield rose 3 basis points (0.03%) to end the week at 4.72% (up 16 basis points (0.16%) YTD). The pound was little changed against the US dollar at US$1.35.
Europe ex UK:
The MSCI Europe ex UK benchmark fell 2% last week (+10.7% YTD). Political instability in France, renewed tariff uncertainty and the prospect of peace between Russia and Ukraine looking more distant weighed on sentiment.
French equities underperformed, falling 3.3% (+7.4% YTD), German indices fell 1.9% (+20.1% YTD) and Italian stocks declined 2.6% (+28.1% YTD). The euro ended the week around the same level it began, at US$1.17.
Quilter Cheviot Approver 3 September 2025
