Gold hits a record, as stocks rally on earnings strength

The gold price made a fresh high on Wednesday above $4,200, although it has given back some of these gains as we move through the afternoon session. Rising expectations for rate cuts in the US and the UK are helping to fuel the move higher in gold, as it gets bought as an inflation hedge.

UK rates cuts expected even with high inflation

The UK may not be the most obvious place you would expect rate cuts, especially as the IMF recently upgraded the UK’s growth forecast and the UK is set to have the highest inflation rate in the G7.

Bank of England Governor Andrew Bailey, has started to speak about how weakness in the labour market justifies further rate cuts down the line. Added to this, the IMF also expects the UK to have the fastest growing tax burden in the G7, which could weigh on growth, and also adds to pressure for rate cuts. This is why the BOE can contemplate cutting rates at the same time as inflation remains elevated.  

Gilts top global sovereign bond performer, this week

The interest rate futures market is fully pricing in two rate cuts from the BOE by summer 2026, last week the expectation was for just over 1 rate cut. This is why bond yields are falling sharply in the UK, 10-year Gilt yields are down by 17bps in the past week, and Gilts are the top performers in the global sovereign debt space. A growing downbeat narrative on the UK’s growth outlook, even though we are set to be the second-best performer in the G7 this year and next, and expectations that Chancellor Reeves could boost her fiscal headroom at the next budget are all driving this rise in bond prices and decline in yields, it is also thwarting GBP upside.

Luxury is Europe’s tech sector once more

As mentioned, stocks are gaining ground today. The Nasdaq, the Eurostoxx 50 and the Cac 40 are all up by more than 1% today, the Cac is higher by more than 2% as luxury shines. Hermes and LVMH are leading the index, they are the equivalent of Europe’s tech stocks and are the jewels in the crown of the European index. They have come under some downward pressure in recent years, especially LVMH, which is down by 20% YTD. However, the stock has taken a massive jump forward after it surprised the market and announced sales growth of 1% across all business units. That has helped the stock price to rally 12% so far on Wednesday.

Earnings season boosts market mood

Across the pond, Dutch firm ASML is bosting the US tech sector. The S&P 500’S tech sector is higher by 1.5% led by semiconductors, after ASML reported strong earnings earlier this morning. Overall, the fact that stocks have managed to rally this week, and investors are now ignoring the tariff risks between the US and China is a sign of how strong market sentiment is. A strong earnings season is helping to boost sentiment. Earnings season in the US has got off to a good start. So far, 39 out of the 500 companies listed on the S&P 500 have reported positive sales and growth surprises. Sales growth is higher by 7.9% and earnings growth by 14%, largely led by the finance sector.

While it is early days in the Q3 earnings season, this is a fantastic start. Although there is a lot of geopolitics and geoeconomic noise in the background, investors are focusing on the fundamentals, and so far this points to further gains for stocks as it boosts the market mood.