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This month, James and Giles are joined by guest Alejandro Velez for a wide-ranging discussion on the macro and market forces shaping investor sentiment.
They explore the impact of the US government shutdown, the UK’s upcoming Autumn Budget and France’s deepening fiscal crisis. Giles shares insights on the Fed’s latest rate cut and the stagflationary signals emerging in the US economy, while Alejandro dives into the growing role of Stablecoins in financial markets following the GENIUS Act.
Our experts also discuss gold’s record-breaking rally past $4,000, the implications of central bank buying, and the risks of circular financing as Big Tech invests heavily in its own AI clients.
Packed with perspective on traditional and digital finance, this episode offers a timely look at the evolving investment landscape.
This podcast is brought to you by TrinityBridge – trinitybridge.com – and features James Tulloch, Senior Investment Specialist, in conversation with Giles Parkinson, Head of Equities and Alejandro Velez, Senior Equity Analyst.
We’ve created this podcast to set out possible approaches. Please do not view it as financial advice, or its content as investment recommendations. Just because an investment or an investment strategy has performed well in the past, it does not mean it will continue to do so. Our predictions are based on information that is currently available, however events and markets can and do change rapidly.
We’ve created this podcast to set out possible approaches. Please do not view it as financial advice, or its content as investment recommendations. Just because an investment or an investment strategy has performed well in the past, it does not mean it will continue to do so. Our predictions are based on information that is currently available, however events and markets can and do change rapidly.
Creators and Guests
What is Insight Talks?
Our in-house experts share our views on the current market conditions facing investors. Brought to you by TrinityBridge.
We've created this podcast to set out possible approaches. Please do not view it as financial advice or its content as investment recommendations. Just because an investment or investment strategy has performed well in the past does not mean that it will continue to do so. Our predictions are based on information that is currently available. However, events and markets can and do change rapidly.
James Tulloch:Hello, and a very warm welcome to the October edition of the Insight Talks podcast with me, James Tullough, joined as usual by our head of equities, Jas Parkinson. Hello, Jas. Hey. Morning. Hi.
James Tulloch:Great to have you as ever. And this month, we're also joined by Alejandro Velez, one of our senior equity analysts who will help us gain an insight into the subject of stablecoins, is certainly a subject which demands a bit more attention at the moment. So, Alejandro, welcome.
Giles Parkinson:Thanks very much for having me. Thank you
James Tulloch:very much indeed for for for joining us this month. We'll get into the weeds of of stablecoin shortly, but as far as traditional assets are concerned, Giles, markets very much remained in risk on mode in September, seemingly content to shrug off lingering concerns over US trade tariffs, geopolitical uncertainty, sluggish economic growth, and indeed the fiscal challenges facing many advanced economies. The difficulties the French government are having tackling the deficits and debt pile are clear for all to to see, and such issues are only likely to come into ever sharper focus in The UK as we edge ever closer to the autumn budget. But we'll begin our roundup in The US, Giles, and right at
Speaker 4:the end of the month, we've seen the latest federal government shutdown begin. At the time of recording, the shutdown is well into its second week. So what's the latest here, and how might this impact The US economy? Yeah, indeed. So the US Congress has failed to secure funding for the next fiscal year, and the implication of this is it's caused a federal government shutdown.
Speaker 4:Now for policymakers, including rate setters at the Federal Reserve, this just delays the collection and dissemination of critical market data, James. You know, for example, the non farm payroll labour stats due last week, or maybe the inflation report, which is due next week. So whilst we've got some federal employees continuing to work, others have been furloughed, but both those groups, James, are without pay. However, in the grand scheme of things, a size of The US economy, important though the federal government is, a shutdown would have to last for some time to truly cause economic damage. Okay.
Speaker 4:For the time being, Congress remains gridlocked for now, but public upset is building, and it may soon force a resolution. As you said, it's now in its second week, and clearly, longer a shutdown lasts, the more disquiet it's likely to lead to. Sure. Sure. Okay.
James Tulloch:I
Speaker 4:think the
James Tulloch:last time a federal government shutdown occurred was late twenty eighteen, and on that occasion it lasted for a little over a month, so we'll obviously monitor developments closely. But for now, headline economic growth in The US, Giles, continues to
Speaker 4:prove pretty resilient, doesn't it? Totally does. Yeah. So the revised data, this revised GDP data released in September, suggested that The US economy actually grew at an annualized rate of 3.8% in the second quarter of that year. In terms of the third quarter, the Atlanta Fed run a GDP now tracker, and that almost coincidentally is also running at 3.8 for the third quarter.
Speaker 4:Right. Now that tracker is now frozen, actually, thanks to the data desert that we're now living in as past this shutdown. But look, all of this resilient growth, particularly in recent months, is down to this AI data centre build out, which
James Tulloch:is really supercharging growth. Okay. Okay. And more broadly on the The US economy, Giles, the Federal Reserve cut interest rates at their September meeting, as was broadly expected. As we've spoken about many times before, it's that balancing act across both meeting both sides of the Fed's mandate, isn't it, trying
Speaker 4:to simultaneously suppress inflation while also protecting jobs? It's the latter which has won out with policymakers this time around, isn't it? Yes, indeed. So the Fed's cut interest rates by a quarter of a percentage point at its September meeting. The chairman, Jerome Powell, said that there's no risk free path ahead when trying to balance the two sides of the mandate, as you mentioned.
Speaker 4:So where are we? Well, The US jobs market has been showing some notable signs of weakness. The US economy added just 22,000 jobs in August, which is was much less than the 75,000 expected. And June's data was also revised show a 13,000 jobs were actually lost in that month. So that's the first, James, that's the first negative number we've seen for a monthly jobs report out of The US Yeah.
Speaker 4:Since the pandemic. Now, although concerning, the data is unlikely to to appreciate more layoffs given that corporate profits are generally strong at the moment. So much of the narrative that we hear around employers in the private sector has very much been one of less hiring but not firing. And so consequence of that means that the rate of unemployment does remain around the 4.2 or 4.3 level. Mhmm.
Speaker 4:But it could quickly move up if corporate profits come under pressure and companies respond by letting workers go. Mhmm. So that's the job side of and the Fed's mandate clearly supports an interest rate cut and more interest rate cuts from here. It's less clear what about the inflation side of the mandate. So the Fed might take some comfort from the fact that inflation expectations remain well anchored.
Speaker 4:Factors like US tariffs does make forecasting it harder and even assessing the current trend rate of inflation that much more difficult. But look, as we've touched on before, the Fed may stand accused of cutting too late if that jobs market continues to weaken given that low interest rates take time to to work their way through and ease credit conditions. So the positive news from an investment point of view is that jobs are trumping inflation for the Fed at this at this point, and they're expected to continue to cut from here.
James Tulloch:Yeah. Sure. Sure. Okay. And as far as The UK is concerned, it's all eyes on the autumn budget, as we say, which
Giles Parkinson:has been set for more or as late as possible in autumn on the November 26. It's been
James Tulloch:the always exciting Party Conference season in September. The Chancellor wasn't able to give much away in her conference speech, but she will have subsequently received the Office of Budget Responsibility's initial assessment of the size of the hole in public finances, so work on the budget will now very much be in full swing. But the news flow in the month has not really helped the mood music for the Treasury, has it, Giles?
Speaker 4:No, sadly not. So ONS reported that UK public sector net borrowing hit £18,000,000,000 in the month of August That's the highest level for and August in five years, and it's somewhere ahead of the consensus expectation of closer to £12,000,000,000 Borrowing over the financial year to date is now £16,000,000,000 higher than for the same period last year. So what's been going on, James, is despite tax receipts increasing, higher spending and debt interest costs have outstripped that higher income. Now look, the public finance data can be volatile on a month to month basis, so such upward pressure may not persist into the medium to longer term. However, the later days only heightens the likelihood of tax hikes if the chancellor is to sufficiently plug this fiscal hole and to keep to her self imposed rules.
Speaker 4:Yeah, sure, sure. Okay. And as was expected, the Bank of England kept interest rates at 4% at their September meeting.
James Tulloch:With inflation as it is, I guess they really had little room
Speaker 4:for maneuver. Yes, indeed. The latest print showed UK inflation remaining close to double the bank's 2% target, so The UK CPI index remained stubbornly at 3.8% at the last print. Now the bank responding to this at their last meeting struck a cautious tone. They weighed that same persistent inflation pressures and a gradually cooling jobs market, much as the Fed did in The US.
Speaker 4:So much so that actually two of the nine members voted for a cut, although market pricing is currently suggesting no further cuts in 2025.
James Tulloch:Yeah.
Speaker 4:That said, inflation looking into '26 is forecast to peak almost any month now, which as it subside next year should permit the bank to start cutting again into 2026.
James Tulloch:Okay. Okay. It seems that that tax hikes on individuals of some form or another are inevitable at the budget. Given the government's long stated desire to boost growth, it perhaps seems unlikely that corporation or employer taxes will be increased further. The obvious or most straightforward option is perhaps to raise income tax, but that would break a manifesto pledge however, the Government's inability to implement any spending cuts might force the hand of the Chancellor.
James Tulloch:And across the channel, more acute problems perhaps of a similar nature, Giles, as the French Government is seemingly finding it more or less impossible to pass
Speaker 4:a budget. Yes, indeed. So this difficulty of passing a French budget has now claimed its fifth Prime Minister in two years, and that number became six in the early days of October as investors fretted about the fiscal deficit.
Giles Parkinson:Indeed.
Speaker 4:We've seen a credit rating agency Fitch downgrade France's debt. What's happened is president Macron had chosen a successor to Bayou, who, due to a no confidence vote, was catalysed by his difficulty in trying to get the French chamber to actually pass a deficit reducing budget. This ultimately comes back onto the politicians and the people that elect them in terms of everyone recognises that the deficit is high, something should be done, but then it comes into the makeup of potential tax rises and spending cuts and the size of the reduction in that budget deficit. As it is, the French parties can't agree amongst themselves, and so Macron has lost a succession of prime ministers trying to get something through. We've had some breaking news just this morning on that.
Speaker 4:So there is due to be another prime minister appointed by the end of tomorrow. We're on Thursday. Mhmm. So tomorrow would be Friday. That could potentially be a bit more of a compromise, little bit more of a coalition type government formed with the intention of getting a budget passed.
James Tulloch:Okay, okay. And if we circle back to The UK briefly, Giles, before we move on, one bright spot of of note or potential bright spot was the announcement of The UK US tech deal, was announced following Donald Trump's state visit to to The UK, which seems a long time ago already, doesn't it? But what can you tell us there?
Speaker 4:Yeah, quite. So from a market perspective, the major announcement from that state visit was that of a landmark UK US tech deal. So this is going to see The UK, Britain and America cooperate across fields such as artificial intelligence, quantum computing, and nuclear power. The UK government said that this, so we call tech prosperity deal, will see both countries pool resources and expertise to foster growth in some of these new technologies. Now the intention is that this results in new health care, energy, and development Britain development benefits across Britain and The US.
Speaker 4:In terms of some companies that were mentioned or name dropped, tech giants such as Microsoft, NVIDIA, and Google have pledged to heavily invest in UK AI Mhmm. And wider technology infrastructure. So there's one figure, 22,000,000,000 investment from Microsoft over the next four years, for example. That probably accounts for a significant chunk of the total value of US investments, which the UK government said it had secured amounting to a 150,000,000,000. So good news there.
Speaker 4:Prime Minister Stalmer, I think, is clearly keen to court US investment to try and boost UK economic growth. Sure. And this tech deal will doubtless be chalked up as a notable win. Yeah, absolutely.
James Tulloch:Okay. And from a market perspective, Charles, one market story which continues unabated is the relentless march higher for the gold price, which in
Speaker 4:the early days of October has breached the $4,000 an ounce mark for the first time. Can gold continue to rise further from here? Let's see. It's certainly risen a lot both over this year and over a short period of time. What I think has been going on under the surface, James, are two things.
Speaker 4:The first is that central banks around the world have just continued to buy. They've continued to to allocate to gold as part of their reserves in a price insensitive fashion. Mhmm. So let's see. For the gold price to remain supported, we do need to see central banks moving into that.
Speaker 4:Sure. The other aspect, I think, of what's going on is this shift in in just the consensus, the real world mindset. This current financial world is very different to the post crisis one. Post crisis, people had a deflationary mindset. People were more concerned about return of capital rather than return on capital.
Speaker 4:Yeah. Whereas I think since the pandemic, there has been a sentiment shift, and now actually people are more occupied by almost a debasement mindset, which I suppose could be summarised as people feel the need to own something just to keep up. Mhmm. So I think that that is also something of what's going on behind the gold price. But in terms of the future price from here, let's see, it can be a volatile commodity.
Speaker 4:Sure, sure. Interesting. And equity markets have also continued to march higher, haven't they, with Big Tech still leading the way in The US, and
James Tulloch:we continue to hear concerns about the levels of concentration now inherent in US and global equity markets. And we've seen a couple of fairly significant announcements over the month of Big Tech companies, you know, investing each other, effectively investing in their own clients in some cases, haven't we? What perhaps are the concerns here?
Speaker 4:Yeah, quite. So each of these deals are different, but one example, you know, involves a chip supplier, say, Nvidia, actually buying a portion of their customer, perhaps OpenAI, in return for cash, which is then used to buy the chips. So look, the optics of all this, James, aren't great. It does, you know, have hallmarks of some of the vendor financing that went on as part of the.com. However, if you go and add up all of these various deals which have been announced and continue to be announced, we've seen more just this week, they actually only account for a small proportion of the spending that the market expects to happen in this area over the future.
Speaker 4:So we definitely agree the optics aren't great, but we're still quite a long way from this sort of circular financing or vendor financing supporting the AI build out. Sure. Okay. Okay. Fascinating.
Speaker 4:Giles, for the
James Tulloch:time being, thank you very much indeed. Always great to get
Speaker 4:your thoughts. Thanks so much.
James Tulloch:Okay. Let's pivot now and and bring in Alejandro on the subject of of stablecoins. Cryptocurrency assets like Bitcoin are seemingly never far from the pages of of the financial press, fascinating and confounding professional investors and and laymen alike. But a little more recently, an alternative type of of digital asset has garnered more attention amongst investors and policymakers, and that has has obviously been stablecoins. Now, they've been circulating since 2014, but the recent increased use and interest has perhaps inevitably attracted greater regulatory scrutiny, and in the summer of this year, the so called Genius Act was passed by Congress in The US, opening the door potentially to wider stablecoin use in financial markets.
James Tulloch:So, with traditional finance and digital cryptocurrency seemingly set to come together more significantly, we thought it high time we enlisted Alejandro's help to explore the topic and its potential implications in a little more detail. Alejandro, welcome. Thank you very much indeed for for joining us this month. Hello. Let's start with the absolute basics, shall we?
James Tulloch:You know, what exactly are stablecoins? What's in the name, and and and what sort of sets them apart from other cryptocurrencies?
Giles Parkinson:Right. So first of all, thanks for having me again. Quite interesting discussion, I I guess. Mhmm. So you mentioned Bitcoin.
Giles Parkinson:You mentioned cryptocurrencies in general. So there are quite a few. Bitcoin is the most famous one. You have Ethereum. You have others.
Giles Parkinson:These tend to be quite volatile. They can swing wildly in price. You can see that by looking at the other price charts anywhere that you can you can access those. But stablecoins are another type of cryptocurrencies, and the idea is that they are going to maintain a stable value. They are typically pegged to fiat currencies like the US dollar or the euro or sterling.
Giles Parkinson:And that's where the name comes from, really. It's they're meant to be stable. So to do that, they're often backed by real world assets. So you have cash, you have short term treasuries. And in some cases, you can have some cryptocurrencies also being part of those assets that back the value of the currency.
Giles Parkinson:And the idea is that $1 of stablecoin is worth $1 of real, physical cash.
James Tulloch:Yes. Okay. Okay. So if stablecoins are sort of most commonly tied to fiat currencies like the dollar or the euro, what sort of sets them apart then from the digital money that we all see and send and receive in our own bank accounts and banking apps?
Giles Parkinson:Yeah, that's a very good question. So the money in your banking app is digital, but it is part of the traditional banking system. So that means that it is regulated, it is insured, and it is backed by the central bank.
James Tulloch:And
Giles Parkinson:stablecoins, on the other hand, they live on blockchains. So that gives them other features. They can be transferred globally. They settle very fast. They tend to have low cost of transactions.
Giles Parkinson:But they're not issued by the central bank, and they're not necessarily held in insured accounts. So they might behave like money, but they operate outside the traditional rails. So that's the main difference.
James Tulloch:And perhaps can you give some examples of how and where stablecoins are currently being used? You know, who who are the major players in this space at the moment?
Giles Parkinson:Right. So in terms of use, the the main use for stablecoins is still crypto trading. Mhmm. So when you sell or you buy your Bitcoin and or your Ethereum, you are settling into USDC, USDT. So the major stablecoins.
Giles Parkinson:Okay. But there there are increased or emerging use cases, for example, in cross border payments,
James Tulloch:particularly
Giles Parkinson:in those currency corridors that are more esoteric, more exotic, or in emerging markets where people are less trustworthy of sorry, less trust trusty of the value of their local currency because of historical hyperinflation or high rates of inflation. Yes. And they want to protect that value, that purchasing power by using stablecoins that are denominated in US dollars, for example. And also, you have the emergence of B2B payments, so transactions between merchants to settle supply chain payments, accounts receivable, accounts payable, or for corporates to actually move their own funds across borders. And then you also have increasing use of C2B payments, so consumers paying merchants.
Giles Parkinson:That is not a mainstream use yet, but it's growing. And you have companies like Shopify now allowing merchants to accept stablecoins as payment. And in terms of the largest players today, you have Tether, which issues the largest stablecoin by volume, USDT. You have Circle, which issues USDC. But you also have PayPal issuing their own stablecoin, and you have banks like JPMorgan or HSBC who have been experimenting with stablecoins and blockchain technology to facilitate payments for their customers and for themselves.
James Tulloch:Okay. Okay. And sort of what are the major risks around stablecoins facing market participants today? The governments and central banks, as you said, have clearly shown a greater interest in stablecoins recently, haven't they?
Giles Parkinson:They have. And we've mentioned the Genius Act a couple of times, so that is the recent law passed by the US Congress earlier this summer. And what the Act tries to do is to bring stablecoins into the mainstream financial services by essentially define a number of key points. So who can issue stablecoins? What assets can they use as reserves?
Giles Parkinson:How often and what type of audits do they have to go through? What will be the consumer protection in terms of redemption rights?
James Tulloch:How
Giles Parkinson:are they going to comply with anti money laundering laws? And also by being very clear about the classification of stablecoins, so what they are and what they're not. And as we said before, well, they're not securities, they're not deposits, they're not commodities, and they're not CBDCs or central bank digital currencies. And by doing that, what they're trying to do is to allow the adoption by institutions more broadly. So, yeah.
Giles Parkinson:And in terms of the traditional risks, what we've had in the past has been risks around transparency Mhmm. The reserve quality and regulatory oversight. But, of course, this is what regulation
James Tulloch:like the Genius Act is trying to address. Sure. Sure. Okay. And then from an investment point of view, Alandro, what sort of risks and opportunities arise for payment companies as as as stablecoins grow in adoption?
Giles Parkinson:Well, that's it's a good question. There's a lot of debate. Ever since, I think it was early June, Walmart and Amazon announced that they were considering issuing their own stablecoins to facilitate payments for their customers. There's been a lot of debate in the financial well, in in the industry. And for us as investors, we we own Visa and Mastercard, which are the traditional payment rails.
Giles Parkinson:And we also own Wise, and we own Boku, for example. So we pay a lot of attention to the potential threats that stablecoins can present to these companies. But also, I think I I also pay a lot of attention to the potential opportunities they present. And there are quite a few, simply because, as we've said before, they they are very good tools in terms of speed of settlement, the programmability of the contracts that you use a stablecoin for. They tend to be low cost as well depending on how you use them.
Giles Parkinson:Yep. And so there is a lot of opportunity for these companies to start using stablecoins to facilitate payments in their own rails, but connecting to other rails
James Tulloch:as well Mhmm.
Giles Parkinson:The ones that are emerging. And I think the I I guess the key here is that stablecoins are no longer just a crypto curiosity. They are becoming part of the financial mainstream. Mhmm. We have regulation now that is bringing them in.
Giles Parkinson:And in the future, I think they will become a complement to the existing payment rails Okay. That we have become used to, well, to using Really. Every day as consumers and consumer to merchant is the main the main payment that is facilitated by the likes of Visa and Mastercard today Mhmm. The change would probably be very slow. Okay.
Giles Parkinson:I think for corporates, for merchants, it's probably going to be a bit faster because they do care more about the cost, the speed, etcetera, that stablecoins can unlock. Mhmm. And then in terms of cross border payments, well, we've already seen an incredible amount of improvements in the speed, the cost, and the availability of the services, thanks to companies like Wise, which we own today. Yeah. So I see them as an opportunity more than an imminent threat.
James Tulloch:Alejandro, thank you ever so much. It's a fascinating topic. There's an awful lot more detail I'm sure we could explore, and I'm sure we'll revisit the topic again in the future, but for now, thank you very much. And Giles, thanks very much again to you for your insights as ever, and thanks to you for listening. If you would like to know more and gain more insights from our experts, please do visit trinitybridge.com.
James Tulloch:We've just released our semi annual publication Insight Matters with expert views from Giles and previous Insight Talks guest Rui Sadiki, so this is not one to miss. I even make an appearance, so what more insight there, what more incentive could you need to go and give it a view? But for now, thank you very much indeed for listening. We will be back to do it all again next month, but for the time being, goodbye.