Shares gain as US rates rise

Key takeaways

US stock markets took last week’s interest-rate hike in their stride. Meanwhile, the Bank of England kept rates on hold while halting its programme of gilt sales for now.

Federal Reserve increases US interest rates
Last Wednesday the Federal Reserve (Fed) raised US interest rates for the first time since 2023. The 0.25% hike, to a range of 3.75% to 4.00%, followed a unanimous decision by the Federal Open Market Committee with the Fed’s new chair, Kevin Warsh, signalling further hikes lay ahead this year. The move confirmed Mr Warsh’s ‘hawkish’ credentials – meaning he favours fighting inflation with increased interest rates – while providing a much-needed credibility boost for the Fed at a time when the White House continues to call for lower interest rates.

Markets currently expect just three more US rate hikes, which would make it the shallowest hiking cycle in history. The news saw US government bonds make short-lived gains as inflation expectations fell, while US shares were quick to rebound suggesting the strength of corporate earnings remains sufficient to offset interest-rate concerns.

UK interest rates kept on hold
Despite surging energy prices fuelling inflation fears, the Bank of England held UK interest rates steady at 3.75% last Thursday, but signalled that it remains poised to raise rates in response to the Middle East crisis. The decision came a day after UK CPI (Consumer Price Index) inflation hit a five-month high of 3.1% for August, with forecasts suggesting it could pass 4% in 2027.

The UK’s weak labour market, and little evidence that rising energy costs are impacting wage growth or prices, has given the central bank some breathing room for now. It’s one of the few not to have increased rates amid the global rate-hiking cycle now underway. Europe has raised rates twice since June, the US has now commenced hiking while the Bank of Japan last week raised rates to a 31-year high.

Bank of England sparks gilt rally
Last week’s rate hold from the Bank of England was accompanied by news that it’s to revamp its current quantitative tightening programme – namely the practice of selling the government bonds (gilts) it acquired in the years following the global financial crisis.

By curbing its sales of longer-dated UK gilts it eased investor concerns that it was increasing the supply on the market and so adding to the pressure on gilt yields (yields move inversely to prices) which were already the highest this century.

The new scheme will see the Bank retain £120bn, and pause further auctions for six months while selling down its remaining holdings at a more genteel, fixed pace over the next eight years. The news saw the yield on 30-year gilts fall to 5.74% in the best day for gilts since May of this year.

For more in-depth commentary from our investment team, please see our latest Investment Views article and Quarterly Outlook video.

Market moves

• US shares led the field thanks to retreating oil prices and renewed interest in technology stocks.
• Emerging market shares made gains while Japanese shares were flat. UK shares were marginally ahead while those in Europe retreated.
• UK government bonds enjoyed a strong rally while US government bonds retreated. Gold rose slightly but is still down in September.

What to look out for this week

• Today is the start of the UN General Assembly in New York. This week also promises a series of closely-watched speeches from Federal Reserve speakers.

• The latest round of ‘flash’ global Purchasing Managers Index (PMI) data for major economies is due in the latter stages of the week.

• Tuesday brings UK public sector borrowing numbers while Thursday will see President Trump host China’s President Xi Jinping at the White House.

• Friday brings the latest US durable goods orders numbers.

Important Information

Handelsbanken Wealth is a trading name of Handelsbanken Wealth & Asset Management Limited which is authorised and regulated by the Financial Conduct Authority (FCA) in the conduct of investment and protection business and is a wholly-owned subsidiary of Handelsbanken plc. For further information on our investment services go to wealthandasset.handelsbanken.co.uk/important-information. Tax advice which does not contain any investment element is not regulated by the FCA. Professional advice should be taken before any course of action is pursued.

• Find out more about our services by contacting us on 01892 701803 or exploring the rest of our website: wealthandasset.handelsbanken.co.uk
• Read about how our investment services are regulated, and other important information: wealthandasset.handelsbanken.co.uk/important-information
• Learn more about wealth and investment concepts in our Learning Zone: wealthandasset.handelsbanken.co.uk/learning-zone/
• Understand more about the language and terminology used in the financial services industry and our own publications through our Glossary of Terms: wealthandasset.handelsbanken.co.uk/glossary-of-terms/

All commentary and data is valid, to the best of our knowledge, at the time of publication. This document is not intended to be a definitive analysis of financial or other markets and does not constitute any recommendation to buy, sell or otherwise trade in any of the investments mentioned. The value of any investment and income from it is not guaranteed and can fall as well as rise, so your capital is at risk.

We manage our investment strategies in accordance with pre-defined risk objectives, which vary depending on the strategy’s risk profile.

Portfolios may include individual investments in structured products, foreign currencies and funds (including funds not regulated by the FCA) which may individually have a relatively high risk profile. The portfolios may specifically include hedge funds, property funds, private equity funds and other funds which may have limited liquidity. Changes in exchange rates between currencies can cause investments of income to go down or up.

This document has been issued by Handelsbanken Wealth. For Handelsbanken Multi Asset Funds, the Authorised Corporate Director is Handelsbanken ACD Limited, which is a wholly-owned subsidiary of Handelsbanken Wealth, and is authorised and regulated by the Financial Conduct Authority (FCA). The Registrar and Depositary is The Bank of New York Mellon (International) Limited, which is authorised by the Prudential Regulation Authority and regulated by the FCA. The Investment Manager is Handelsbanken Wealth, which is authorised and regulated by the FCA.

Before investing in a Handelsbanken Multi Asset Fund you should read the Key Investor Information Document (KIID) as it contains important information regarding the fund including charges and specific risk warnings. The Prospectus, Key Investor Information Document, current prices and latest report and accounts are available from the following webpage: wealthandasset.handelsbanken.co.uk/fund-information/fund-information/, or you can request these from Handelsbanken Wealth or Handelsbanken ACD Limited:25 Basinghall Street, London EC2V 5HA or by telephone on +44 01892 701803.

Registered Head Office: 25 Basinghall Street, London EC2V 5HA. Registered in England No: 4132340