Markets Happy Hour Podcast - July 16, 2026 A Budget Summer

This week's podcast comes from a somewhat downbeat London after the exit of the England team from the World Cup semi-final last night. It was a tough loss - particularly poignant as the atmosphere had been so electric in London last night. Starting with inflation, the surprisingly low number in June reflects the fall in the oil prices, which continues to be very leveraged to geopolitical news. This is despite expectations actually being higher - per the headline from last week. The oil price is continuing to reflect the low inventories in oil, which are noted to be historically low. The expectation around interest rates is shifting as inflation shifts downwards, although based on the oil price sensitivity this could be premature. There is a fascinating rotation taking place in equity markets - whereby small-cap companies are seeing a strong underpinning of demand - even the negative earning companies. This suggests that there is an ability to see through the hype and to identify potential in smaller companies - at their early growth stage. Other notable trends include the financial sector which has performed exceptionally well as the volume of trading has increased and M&A activity. The economic outlook is bright with a smaller expectation of US recession probability - indicating a buoyant economic outlook sparked by lower inflation and strong earnings. The sharp drop in IBM stock was a telling development - as it was clear from their statement that they were experiencing consumers making choices away from their products in favour of AI expenditure. This could be a harbinger of other choices are likely to make, indicating that pockets are not unlimited and deep. The explosion of complex derivatives, including levered ETFs on single stocks is jolting volatility in markets such as Korea, and as the chart below shows the assets in such instruments have really grown.