WeekWatch

• AI remained the dominant market story, driving strong corporate earnings and record highs in US equities. This was despite growing debate around valuations, competition and the long-term return on massive investment spending.
• The conflict between the US and Iran continued to shape markets, influencing oil prices, inflation expectations and investor sentiment as hopes of progress repeatedly emerged and faded.
• Droughts, heatwaves and wildfires raised fears over food production, supply chains and inflationary pressures across Europe.
• Attention turned to government finances, with the US national debt surpassing $40 trillion. Investors closely monitored borrowing levels, bond markets and the outlook for interest rates. 

Fed chair Warsh tees up rate hikes to ease inflation pressures

Federal Reserve chairman Kevin Warsh voiced concerns over stubborn inflation in the US economy during his keynote speech at last week’s Jackson Hole Economic Policy Symposium.

Warsh was “impressed by the overall performance of the economy”. He pointed to the resilience of Main Street and Wall Street. This included rapidly rising business investment – largely into AI-related technologies – and 20% higher profitability across S&P 500-listed companies in the last year alone. But with inflation running above its 2% target for 65 months, he was clear the Fed’s primary focus should be on stabilising prices.

Nearly half the goods and services in the Personal Consumption Expenditure (PCE) basket showed price increases of more than 3%. Recent commodity price increases due to tensions around supply chains, investment flow and geopolitics remained worrisome.

What does it mean? While stressing his remarks were not forward guidance, responsibility for price stability sits squarely with the central bank. And if underlying inflation did not come closer to target soon, he said the Fed had “work to do”. For some, this could imply a teeing-up of future rate hikes.

According to CME Group's FedWatch, the likelihood of a rate hike at the Fed's next meeting (15-16 September) increased to 66.1% – nearly double where it was before Friday's speech.

The US dollar index rose 0.46% to 99.57 on Friday afternoon. US equity markets were largely unmoved and short-term Treasury yields ticked higher, from around 4.23% before the speech to 4.32% shortly afterwards.

Nvidia smashes expectations

All eyes were on Nvidia’s quarterly results (released midweek) with investors looking for evidence of whether the AI boom is starting to slow. The answer appears to be no. The company reported quarterly revenue of $96.2 billion, more than double that of a year ago and ahead of forecasts of $92.2 billion. Management also projected approximately 70% revenue growth through to the fiscal year ending in 2028. This signalled continued confidence in AI demand.

The results were closely watched because Nvidia is the primary chipmaker behind much of the world's AI infrastructure. Recent concerns about the scale of AI spending have weighed on large US technology companies, even as investment has continued to flow towards semiconductor manufacturers, particularly in emerging markets.

With Nvidia's share price rising 7% the following day, Carlota Estragues Lopez, equity strategist at St. James's Place, said: “Amid recent weakness and volatility in the Mag 7 this year, which has been driven by concerns around AI-related capex, recent earnings results from Nvidia and other technology firms have returned some of the wind in the AI theme's sails. Although investors have reacted extremely favourably to the news, we are still cautious about the sustainability of these lofty profit growth expectations.”

FCA warns investors using AI

With the AI boom showing few signs of slowing, the Financial Conduct Authority (FCA) has warned investors about the dangers of using AI for help with investing.

A survey of 666 18- to 40-year-olds who own or are considering investments found more than half (56%) trusted AI tools when making investment decisions.¹ This was above TV and radio, press and social media influencers.

The research highlighted a worrying misconception among investors about AI and financial regulation and consumer protections.  

According to the FCA, almost half of respondents (44%) incorrectly believed AI-generated financial information was regulated. Around a third (32%) wrongly thought they'd get compensation from the Financial Services Compensation Scheme (FSCS) or Financial Ombudsman Service if AI advice went wrong. 

While AI tools specifically set up to provide financial advice would likely fall under the FCA’s remit, general-purpose chatbots are not currently regulated. 

Burnham’s business pitch

With the Autumn Budget now less than two months away, prime minister Andy Burnham has moved to reassure firms about what lies ahead. In an interview with the Financial Times, Burnham said he would look to ‘take pressure off’ businesses.

The comments are likely to be welcomed by business leaders, following questions about how business friendly his government would prove to be. Burnham acknowledged the difficult environment facing both large and small companies and suggested ministers are looking for ways to encourage investment and growth.

However, the backdrop remains challenging. Last week Ofgem, the energy regulator, announced the UK energy price cap would rise by 4% from October. 

Meanwhile, almost one million young people remain outside education, employment or training (so-called NEETs) This is despite a 30,000 drop in the number between March and June this year.

According to Lancaster University's Work Foundation, more than a third of employers have reduced their hiring for entry-level jobs over the last 12 months.² 

¹FCA survey, conducted on 24 July 2026.
² Based on a survey of 1,001 UK senior business leaders, commissioned by the Work Foundation at Lancaster University

Capital gains tax take reaches record levels

HM Revenue & Customs (HMRC) recorded £24.2 billion in capital gains tax (CGT) receipts in the 2024/25 tax year, the highest level on record.³

This represents an increase of 82% compared with the previous tax year. The number of people paying CGT rose by 45% over the same period, reaching 584,000.

This sharp increase in CGT payments follows rate changes announced by former chancellor Rachel Reeves in her first Budget in October 2024. CGT increased from 10% to 18% for basic rate taxpayers, and from 20% to 24% for higher and additional rate taxpayers.

In addition, there have been successive reductions to the annual tax-free allowance for CGT.

In the tax year 2022/23 the allowance stood at £12,300 before falling to £6,000 in 2023/24. It was then cut to £3,000 in the 2024/25 tax year and has remained at that level since.

Source

³HMRC, Capital Gains Tax commentary – August 2026