Weekly Comment: What do Burnham and Warsh have in common?

Market overview

Question, what do Burnham and Warsh have in common? Answer, breathing space. With last week’s economic data on both sides of the Atlantic falling on the (relatively) benign side, new UK prime minister Andy Burnham and new Federal Reserve (Fed) chair Kevin Warsh have arguably been given a little more time to find their feet in their new roles.

The UK assumes top spot

In the case of Burnham, the UK economy grew 0.4% in Q2. While still subject to revision, this backs up Q1’s 0.6% expansion which, when taken together, is a long way from the gloom that descended at the onset of the Middle East conflict. Services continue to do the bulk of the work for the economy, with production and construction both falling in June. While nothing to write home about, the growth is perhaps reflective of a UK economy that was in a more robust shape than thought given what the first six months have thrown up so far.

While Burnham can’t take credit for the UK’s resilient economic performance (what must his predecessor Sir Keir Starmer be thinking?), the Q2 number means the UK was the fastest-growing G7 economy in the first half. Not a bad backdrop for the new UK premier. No time to rest on laurels though. For the UK has been here before with the first half of 2025 delivering strong growth, only for GDP to grind to a halt in the second half. A similar trend could emerge again, even with a new prime minister keen to boost consumer confidence. Businesses have been stockpiling due to supply-chain disruption caused by the US-Iran conflict, but with energy prices having moderated and talks of a fresh ceasefire gaining momentum, such activity is unlikely to be repeated. One-off events (the World Cup, the effects of recent heatwaves) have also contributed.

Furthermore, as October’s Budget approaches, the new government needs to avoid making the same mistakes as the last one and choke off growth by allowing speculation of tax rises to run rampant. The last two Budgets have seen consumers and businesses hold off on spending and investment decisions due to the uncertainty. At least the relatively strong growth numbers give Andy Burnham and chancellor John Healey breathing space to ensure the messaging this time round is clear and coherent.

US hike talk takes…a hike (for now)

The narrative from Kevin Warsh has, at least at one level, been clear—Warsh has made it ‘clear’ that central bank guidance on the path of US interest rates will be minimalist at best under his stewardship. Markets are therefore having to lean more on economic data to determine the future direction of interest rates. A good time then for inflation to drop to 3.4% in July, down from 3.5% in the prior month. Core inflation declined by the same margin to 2.5%. Core producer prices rose by a less-than-expected 0.2% in July while on a year-over-year basis, headline producer prices rose by a below consensus 4.7% compared to June’s 5.5%. Inflation is heading in the right direction, for now. Together with the previous week’s soft employment numbers, the latest data should reduce the chances of a September rate hike and could eliminate the need for any for the rest of the year—subject to what happens in the Middle East.

Good news for Warsh then. Hand-picked by rate-cut hungry President Trump, Warsh potentially faced the unenviable task of having to justify hiking rates to his boss after strong inflation readings landed on his desk just weeks after assuming office in May. Like Burnham, Warsh has been given some breathing space. How long this lasts, and what they both make of it…time will tell.  

Weekly market moves:

The MSCI All Country World Index (MSCI ACWI) ended the week 0.7% higher, up 15.7% year-to-date (YTD).

United States:

Hat trick! The main US stock market clocked up gains for a third successive week. True a weekly rise of 0.4% (+14.5% YTD) was less than those seen in recent weeks. This is likely a reflection of investors having to balance the positives of easing inflation and interest rate policy concerns and continued appetite for the artificial intelligence (AI) trade with negatives such as continued uncertainty in the Middle East and weak consumer data— a preliminary reading of the University of Michigan Consumer Sentiment Index for August came in at 51, 4.2 points lower than July. AI-tailwinds meant growth stocks (+0.5%) outperformed value (+0.4%) although on a YTD basis growth (+6.2%) has a long way to go to catch up with value (+23.9%). Small caps were this week’s winners though, courtesy of a 1.1% rise (+24.6% YTD).

It was a week of two halves in the US Treasury market. Higher oil prices raised inflation concerns (and yields) at the beginning of the week. July’s inflation numbers led to inflation concerns (and yields) falling back towards the end of the week. The result? Yields barely budged: the 10-year Treasury yield rose four basis points to 4.69% (up 52 basis points YTD); the 2-year Treasury edged down three basis points to 4.17% (up 69 basis points YTD).

United Kingdom:

UK large caps underperformed both their global peers and their smaller domestic siblings—large caps fell 1.1% (+10.9% YTD); mid caps rose 0.2% (+13.1% YTD). Sterling was unchanged at US$1.35. Those better-than-expected Q2 GDP figures and higher oil prices strengthened the case for interest rate hikes. No surprise then that gilt yields too ended the week higher: the yield on the 10-year UK gilt increased 12 basis points to 5.04% (up 56 basis points YTD).

Europe ex UK:

It’s not often a mainstream equity index ends a week unchanged but that is precisely what the MSCI Europe ex-UK Index did (+13.6% YTD). The opposing forces of resilient economic data and robust corporate earnings on the one hand and Middle East uncertainty on the other largely cancelled themselves out.  At the national level, Germany’s main index was the standout after rising 0.5% (+8.0% YTD); Italy’s was 0.2% lower (+22.9% YTD); France’s off 0.9% (+8.9% YTD); and Switzerland’s down 1.1% (+11.6% YTD). Like stocks, the euro was unchanged at US$1.16. Not so the 10-year German bund yield which rose seven basis points to 3.20% (up 35 basis points YTD).

Important information

Investors should remember that the value of investments, and the income from them, can go down as well as up and that past performance is no guarantee of future returns. You may not recover what you invest.

This material is a marketing communication provided for information purposes only and does not constitute independent investment research. References to financial instruments are for general information purposes and are not subject to requirements applicable to independent investment research.

Any references to securities or financial instruments should not be regarded as a personal recommendation, or as an offer, solicitation or invitation to buy or sell any financial instruments. The views expressed are those of the authors at the time of publication and are subject to change.

This material does not constitute tax, legal or accounting advice. You should seek independent professional advice appropriate to your individual circumstances before making any financial decision or engaging in any transaction.

To listen to all the past Weekly Comment podcasts click here or subscribe via the apps below: