US mid-terms sees market rout ahead of US CPI and UK Q3 GDP

Now that the US midterms are in the rear-view mirror, and the Democrat blue tsunami sweeping across the US, stock markets have taken a few days to digest what might come in the remaining two years of the Trump Presidency.

The initial reaction post Tuesday was a slump in AI related stocks, while the bigger hyperscalers like Alphabet, Amazon, Microsoft and Meta got an initial lift, along with markets in Europe as energy prices slid sharply on optimism that Trump’s defeat might presage a softer US approach to the Middle East.

Today the sell-off has gone mainstream with large losses across the board on concerns that we might see greater opposition to AI build out plans, with the results in Texas prompting concerns that politicians in the state might target Elon Musk’s Tesla and SpaceX due to his support for Trump.

European markets look set to get caught up in today’s sell off when they open tomorrow morning, with the DAX and FTSE100 set to open sharply lower, only hours after setting or coming close to fresh record highs.

Today’s Bank of England rate decision proved to be a fairly low-key affair, with policymakers voting unanimously to hike rates by 25bps, although Catherine Mann decided to go one better and vote for a 50bps increase. This unexpectedly hawkish turn initially saw yields edge higher, with 4 members signalling that this could well be the start of further hikes, with the usual suspects of Pill and external member Greene leaning that way.

More importantly Governor Bailey as well as his deputy Claire Lombardelli also leaned in that direction. The central bank said it expects CPI to peak as high as 4.9%.

Swathi Dhingra and Alan Taylor while agreeing to a hike were slightly less effusive when it came to additional action.

While many will criticise the bank for doing this, the reality is that UK gilt yields are lower now than they were a month ago, and they didn’t really have any choice given that the Fed will probably hike again next month when they see next week’s October CPI numbers move back towards 4%.

The US jobs market continues to look fairly resilient which means the Fed is much more focussed on the inflation side of its mandate. There is also the added bonus for the central bank that a Democrat clean sweep in both US houses, has made their policy making decisions that much easier now that President Trump has lost his majorities in both Houses.

1) US CPI (Oct) – 10/11 – having seen the US economy grow by 3.4% in Q3 it is clear that despite the pressures of high fuel prices that economic growth isn’t suffering unduly as a consequence. Neither for that matter is the jobs market, and while there are concerns that headline inflation might have further to run, we’re still below the 4.2% peaks seen in the summer. There are also some signs that the worst of the inflation spike could be closer to the end than the beginning. In this week’s ISM surveys the prices paid component for manufacturing slowed to 75.2 in October, while services prices paid also eased to 73. In September we saw US headline CPI rise to 3.7%, with energy prices being the main driver, gasoline prices rising by 34.2%. This upward pressure is expected to continue in October, however if the recent falls in oil prices seen in the last few days is sustained this could prove to be the high point as far as headline inflation is any guide, even with the lag effect of higher PPI prices, which rose by 6.3% in September, which may well linger into next year.                    

2) UK Q3 GDP – 12/11 – having seen the UK economy get off to a solid first half of the year, expectations that we will see that repeated in the second half of the year were low. This emphasis hasn’t changed despite early signs that the early part of Q3 has got off to a fairly positive start. Having seen the UK economy slow modestly to 0.5% in Q2, the recent monthly GDP number saw Q3 get off to a strong start of 0.4% in July. This slowed sharply in August to 0.1%, with the resulting numbers showing an even pace of growth during the month. The growth in August was driven by a 0.8% growth in production, with services showing no growth, and construction falling by 0.2%. On a rolling 3-month basis growth was 0.7%. Private house building was down 3.2%, and construction fell 1.8% year on year. On the plus side software and legal services saw a strong performance, which could well carry over into the September numbers. This could be an area that helps to boost the UK economy in Q3, and help to deliver growth in the region of 0.2%.  

3) EU Q3 GDP – 13/11 – the French economy is likely to be the main drag on the Q3 GDP numbers for the EU given the unrest seen across the country during September. The recent flash numbers saw the French economy contract by -0.1%, while the German economy grew by 0.2%. The main drivers are once again expected to be the Spain economy which saw flash GDP of 0.6%, and Italy of 0.4%. These improvements, with the exception of France, suggest that this week’s Q3 GDP numbers from the EU could match the 0.4% expansion seen in Q2.

4) Vodafone H1 27 - 10/11 – when Vodafone released their full year numbers back in May the shares spent the next 2-months on the slide, retreating from 4-year highs, before finding a base at 7-month lows in July. This was despite the results being better than expected with total revenue up by 8% to €40.5bn. This was driven by an 8.8% increase in service revenue to €33.5bn, 5.4% on an organic basis, helped in no small part by the ongoing Three integration process and growth in Africa. Here there was growth in all areas with the exception of the German business, which saw organic service revenue decline 0.2%. Vodafone Business also grew 2.2% in 2026 and by 3.2% on an organic basis. Operating profits came in at €2.8bn, a solid improvement on the €400m loss a year ago, with EBITDA coming in at €11.4bn. The telecoms giant also managed to return a profit of €59m in 2026, compared to last year’s hefty loss of €3.7bn, which was driven by impairment costs of €4.5bn in relation to its struggling German operation. The strong rebound seen in July was driven by the announcement that Vega, an acquisition vehicle owned by the Niel family, would be buying the entire 16.2% stake of the Emirates Telecoms group for £4.4bn in cash, and that it hoped would bring its sector expertise into play in order to boost the telecom company’s growth potential. Since then, shares have been on an upward glide with Vodafone reporting at the end of July that it had seen a strong start to the year with organic service revenue increasing by 5.2%, including improving retail revenues in Germany, along with strong momentum in the UK, which saw a 9.7% increase in total revenue to €10.3bn. For 2027 Vodafone also upgraded its ranges for Adjusted EBITDA to between €13bn and €13.3bn, and adjusted free cash flow of between €2.6bn and €2.9bn.

5) B&M European Retail H1 27 – 11/11 – for quite some time B&M European Value Retail shares struggled to shrug off concerns over its governance due to errors in its accounts, which it reported towards the end of last year, and which saw the shares trade at record lows for around 6-months. For a budget retailer such as B&M in the current environment the shares ought to be doing better, but since the peaks of 2023 the shares have been on a way trip to the downside. That now appears to be changing with the shares up almost 100% from the lows set back in March this year. When the retailer reported in June momentum appeared to see a sea change on the back of a 3.6% increase in Group revenue of £5.77bn. Group profit before tax was down 47.3% at £227m, while free cash flow rose by 3% to £321m. On the EBITDA measure that prompted the big sell off at the end of last year, this came in at £459m, right in the middle of the £440m and £475m guidance set at the start of the year. As far as the various businesses are concerned B&M UK saw revenue growth slow to 2.9%, with the French business being the biggest gainer rising to 13.4% from 7.8%, although that number flatters a little given it only makes up £616m of the total group revenue figure. B&M cited higher cost inflation and lower margins for the slowdown in profits. For 2027 B&M said they would now be using adjusted profit before tax for guidance instead of EBITDA. In terms of the outlook, management said the UK had seen a slower start; however, the better May weather had provided an uplift. In July B&M reported a 2% increase in Q1 group revenue of £1.43bn, driven by a 14.3% increase in B&M France, which saw revenues increase to £156m. LFL sales rose by 5.3%. In the UK B&M’s revenue rose by 0.3% to £1.13bn, although LFL sales fell 2.3%. As we look to Q2 and the end of H1, B&M’s French business may well have been impacted by the unrest seen across France, even though it makes up a smaller revenue component.   

6) Rolls-Royce Q3 26 – 12/11 – Rolls-Royce saw a bumper set of numbers when it reported in H1, helping to push the shares to new record highs in the days afterwards, although since then the shares have slipped back somewhat. Underlying operating profits surged 46% to £2.5bn, while operating margins also improved, rising to 22.5%, from 19.1%. Profit before tax rose to £2.5bn, up from £1.69bn in H1 of last year. Free cash flow rose to £1.96bn. Full year guidance was increased with an expectation of £4.7bn to £4.9bn of underlying operating profit and up to £4bn in free cash flow. H1 revenue rose 26% to £11.28bn. Civil aerospace margins improved to 25.3%, helping to deliver a 29% increase in revenue of £6.18bn. Large EFH continued to improve, rising to 113% of 2019 levels and up 4%, with demand for new jet engines also helping to drive up its order book. Defence and Power Systems also saw improved performance with 17% and 28% improvements in revenues respectively as well as solid margin improvements. Power systems were also helped by strong demand for battery storage to support grid stability and renewable energy integration. The company also got an order for 3 SMRs from Sweden. An interim dividend of 6p per share was announced with the multiyear buyback program set to continue. While the shares have suffered some weakness from the record highs seen back in August, sliding from 1,585p to as low as 1,158p in October, the outlook continues to look positive. In the recent budget the company got a £2.5bn investment from the UK government as it looks to lead development for a fuel-efficient engine in the single aisle narrow body jet airline market. The deal will safeguard 3,300 UK jobs, as well as various supply chain partners over a 10-year period.      

7) Burberry H1 27 – 12/11 – when Burberry reported in July the shares knee jerked lower despite reporting a 5% increase in retail revenue to £455m. While the shares subsequently recovered in the days after progress since then has been fairly lacklustre share price wise.  The growth was driven primarily by a 12% increase in comparable sales in the Americas and a 9% increase in the Greater China region. Asia Pacific also saw growth of 3%, while EMEIA fell 3% with the conflict in the Middle East acting as a drag here. The retailer also raised its guidance for wholesale revenue for H1, with a forecast of high-single digit percentage increase, up from mid-single digit. Burberry also said it was taking a £5m restructuring charge in 2027, with annualised cost savings expected to be £100m by the end of the fiscal year.  

8) Cisco Systems Q1 27 – 12/11 - Cisco Systems shares briefly surged to a new record high after reporting Q4 numbers that not only beat forecasts, but also saw Q1 guidance raised above consensus forecasts. Since then, the share price has traded sideways over concerns about the longevity of this surge in AI related spending. Q4 revenue of $17.3bn was 18% higher than the same period in 2025, with net income rising 23% to $4.9bn. Networking product orders rose 40% year on year, with $4bn in new orders taken in Q4, bringing the total for FY 2026 to $9.3bn. For 2027 Q1 revenues are expected to increase to $18bn to $18.2bn, and profits of $1.33 a share. Full year revenues are expected to rise from $63.3bn in 2026 to between $72.2bn and $73.4bn, and annual EPS of $5.08 a share, +/-3c.