Published
1st December 2025
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Uncategorised
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The most significant story last week was the UK Budget announced on Wednesday by Chancellor Rachel Reeves. There were no major surprises, with signposted changes to pension salary sacrifice schemes, the two-child benefit cap and higher taxes on gambling companies announced as expected. Freezes to tax thresholds and student loan repayment thresholds were also announced. These measures are estimated to raise the overall tax burden to c.38% of GDP by the time of the next General Election.
Elsewhere, there was progress in peace talks between Russia and Ukraine last week following efforts by representatives from both the EU and the US.
US Equity Market:
Despite exceeding earnings expectations the previous week, Nvidia has continued to shed its gains from earlier this year as investor concern about the sustainability of AI-related firms sky-high valuations continues to diffuse through markets. Nivida is now trading c.10% lower than the peak it reached at the end of October.
Alphabet, the parent company of Google, continues to perform strongly off the back of improvements in both its cloud and AI offerings, as well as a favourable court ruling in September regarding the perceived monopoly it has in its search business. This rally over 2025 has pushed the company closer towards a $4 trillion dollar valuation, a feat only achieved by Nvidia, Apple and Microsoft previously.
Over the week to Friday, the S&P 500 and the NASDAQ indices are up 3.74% and 4.94% respectively.
UK Equity Market:
Responses by UK companies to the Chancellor's budget were mixed.
British banks, which have been subject to uncertainty in recent months concerning the potential introduction of a windfall tax, rallied after the government elected not to introduce the tax. Shares in NatWest rose by 2.5%, and Lloyds Banking Group shares spiked 3.8% last Wednesday. Global banks Barclays and HSBC also had positive, albeit more muted, responses to the news, rallying 3.2% and 1% respectively.
In contrast, investors reactions to the announcement of planned tax hikes on UK gambling companies drove stock prices down. Evoke, the parent company of gambling houses William Hill and 888 saw its shares fall almost 18% last Wednesday.
Over the week to Friday, the FTSE 100 index is up 1.95%. Sterling now trades at 1.32 against the US Dollar.
Inflation, Interest Rates and Bond Markets:
UK long-dated gilt yields climbed in the month leading up to the budget on concerns about borrowing. However, these pressures eased after the announcement as the Chancellor's fiscal plans looked more cautious than feared. The 10-year yield slipped to c.4.45%, though longer-term rates remain high, reflecting ongoing debt concerns.
In the US, markets are now pricing in an 85% chance of a rate cut in December. This has been driven by signs of slowing growth and a weaker labour market, despite inflation remaining slightly above target. A cut would lower borrowing costs and could support global markets.
What's on the horizon
Today markets will watch the speech by Jay Powell, Chair of the US Federal Reserve, for any hints on timing of US rate cuts, especially after recent soft labour data. A dovish tone could reinforce expectations for easing. Also today, the Governor of the Bank of Japan is meeting with business leaders in Nagoya with discussions expected to be focused on monetary policy, the outlook for inflation and forward guidance on rate adjustments.
Tomorrow, a key measure of eurozone inflation, the EU Harmonised Index of Consumer Prices, will be announced. Investors expect headline inflation to stay near 2%, with core inflation slightly higher. A surprise drop could strengthen expectations for European Central Bank ("ECB") cuts in early 2026, while sticky services inflation would keep policy on hold longer.
Q3 EU Economic Growth data is due to be announced this Friday with consensus pointing towards flat-to-slight growth. Any upside surprise would ease recession fears and reduce urgency for ECB easing, while weakness could weigh on euro sentiment.
Finally, no major earnings releases are expected to drive markets this week, so macro data and central bank signals will dominate investor focus.
The Cambridge Team
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Source of financial market data: MorningstarDirect.
