US midterm elections tomorrow
Americans go to the polls on Tuesday. While the US economy remains robust, inflation is also stubborn. Despite President Trump’s energetic campaigning, his approval rating has hit new lows amid a second administration dogged by high inflation, renewed trade tariffs and overseas war.
Although US Consumer Price Index (CPI) inflation jumped to 3.7% in September, the Federal Reserve voted to keep interest rates on hold at 3.75% - 4% last week, a month after its first rate hike in three years. Meanwhile, US GDP growth leapt from 2.2% in the second quarter to 3.4% in the third, thanks to robust consumer and government spending and heightened levels of business investment.
Even so, Americans are expected to punish the Republicans for rising energy costs and another expensive war. Prediction markets now forecast a ‘blue wave’ with the Democrats favourites to win back the House of Representatives and to take the US Senate by a more narrow margin.
Bank of England rate hike expected this week
The Bank of England is expected to increase UK interest rates by 0.25% this Thursday to 4%. The forecast rise follows Chancellor John Healey’s first UK Budget last week.
UK inflation accelerated to 3.5% in September, its highest in almost a year, thanks chiefly to the spike in energy prices delivered by the Iran war. A rate rise this week would be the first since the outbreak of the conflict at the end of February.
Although described as a Budget of “picky bits”, Mr Healey’s first outing nevertheless enabled UK bond markets to remain calm. Even so, the mood was restrained by the Office for Budget Responsibility (OBR), which issued updated economic forecasts.
These included a warning over the “grim picture” for UK living standards. The OBR expects UK households to suffer a £1,000 reduction in income over the next three years as it projects that UK prices will have risen close to 40% in the seven years to early 2028.
Anthropic IPO looms as tech earnings disappoint
Anthropic, creator of the Claude AI family, published its IPO listing details last week targeting a revised valuation of up to $1.75tn. It’s expected to list on the Nasdaq technology index at some point between this week’s US midterm elections and the Thanksgiving holiday on 26 November.
Although the listing stands to be one of the largest of all time, it comes against a challenging backdrop for technology stocks. The Nasdaq 100 Index fell 3.5% last Friday, completing its worst month in over a year, as investors increasingly demanded signs of returns on AI investment.
Last week’s results from Alphabet (Google), Amazon and Intel also disappointed investors due to increasing AI spending and slowing growth in their core businesses. Elsewhere, news on Friday that Anthropic’s debt would likely be classified as ‘junk’ added to the declining AI sentiment.
Consequently, Anthropic’s listing is being seen as the biggest test so far for the continued strength of the AI trade.
