1 . Kamala and the Big Mo
There is one thing that American political operatives want more than anything else; momentum - ‘the big mo’. This is the sense in the general public that something is shifting in their favour. The past month has provided this for Vice President Kamala Harris. After belatedly taking hold of the Democratic Presidential nomination, she has moved ahead of challenger former President Donald Trump. Her fresh lead is real, as much as four points in the key swing states of Michigan, Pennsylvania and Wisconsin. But it is still only slight. Whilst the general movement is in her direction, polls still indicate more Americans trust Trump on issues such as immigration and the economy. As the race develops it may well be that the early momentum dissipates, and Harris will require a robust policy platform to maintain her lead. This is, in our view, a race that remains too close to call and must be watched carefully to determine which US sectors will thrive under the next US President. However, as is always the case for our investment approach we do not make bets on things we cannot predict. Instead, we prepare so we are ready whatever eventuality comes to pass.
2 . The US economy and the Big Slo-Mo
The start of August was dominated by a few days of sharp market volatility for investors. Whilst there are a number of factors that caused this connected to Japanese interest rates and rumours around the technology sector, the primary driving force behind the turbulence was a number of US economic reports that indicated that unemployment was rising faster than had been thought. This leads to the fear that the Federal Reserve may have waited too long to cut interest rates and that the US economy may be slowing more than had been thought. However, these weak data points are out of step with many others which suggest some continued strength in the US economy. It remains our view that the first cut is likely to come in September from the Federal Reserve but will not be too hurried or panicked.
3 . And the first interest rate cut for the UK
The UK has moved ahead of the US in cutting interest rates last month. The move is certainly a significant one that signifies the era of post-Covid inflation is drawing to a close. However, we believe that this cut should not be over-interpreted. The UK is still experiencing relatively robust wage inflation, and this means that the cuts we are likely to see for the remainder of this year will be modest. Indeed a small increase in inflation is likely in the months ahead. So whilst we are over the worst for interest rates, we should not expect them to fall too rapidly from here.
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