Welcome to this week’s Market Pulse, your 5-minute update on key market news and events, with takeaways and insights from the Sidekick Investment Team.

Today, we're looking at Europe’s debate over the digital euro, UK inflation dipping for the first time since March, and the FSCS deposit protection limit increasing to £120,000.

But first, our number of the week…

62%

That’s how much Nvidia’s revenue has climbed since this time last year, according to the company’s latest earnings results. At $57 billion in revenue, Nvidia managed to exceed Wall Street’s soaring expectations, helping downplay fears of an AI bubble. 

Sidekick Takeaway: Despite Nvidia’s stellar results, broader US indexes ended up falling on Thursday following lower expectations of a Fed rate cut in December. While the AI trade has helped support markets in recent months, America’s stubborn inflation means that rate cuts may not come as quickly as investors hope. 

Only have a minute to read? Here’s the TL;DR:

• Europe could become the first major economy with a functioning CBDC as policymakers debate the ‘digital euro’, with a full launch expected by 2029. Key disagreements include whether the tool should be limited to offline transactions and continued debates over privacy and accessibility. 
• UK inflation fell to 3.6% in October from 3.8% in September, the first decrease since March. While the dip was driven mainly by volatile energy prices, traders now expect an additional BoE rate cut in December. However, tax hikes in the coming autumn budget could reignite price pressures.
• The FSCS deposit protection limit will increase from £85,000 to £120,000 per depositor on 1 December, exceeding initial proposals of £110,000. The higher limit should promote greater confidence in the UK banking system and reduce the likelihood of bank runs.

It’s important to note that the content of this Market Pulse is based on current public information which we consider to be reliable and accurate. It represents Sidekick’s view only and does not represent investment advice - investors should not take decisions to trade based on this information.

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Taking the First Byte: Europe Debates First Major CBDC

The concept of a Central Bank Digital Currency (CBDC) has been floated for a while, especially as stablecoins have risen in popularity.

Under most proposals, a CBDC functions like digital cash. The currency is issued by a central bank and allows for instant peer-to-peer transactions. 

Yet despite the potential benefits of such a tool, few countries have fully implemented it. Only Nigeria, Jamaica, and the Bahamas have officially launched CBDCs.

But as momentum for a digital currency grows in the euro zone, that looks set to change.

In the coming years, Europe could be the first major economy to feature a functioning CBDC, with policymakers actively debating how the tool will be structured. 

Digital euro gathers steam, but sparks debate

A multi-year pilot project for the ‘digital euro’ recently concluded, with the full launch expected in 2029. 

But dueling policymaker debates show that the project remains controversial, with legislators arguing about how the tool should function in practice: 

• Last month, an EU legislator argued in a report that the digital euro should be limited to ‘offline’ use only – that is, in-person transactions. This vision would most closely resemble cash.
• In contrast, a board member at the ECB this week pushed back on the offline-only proposal, stating that the digital euro should be usable for any payment – including online purchases. 
• The offline-online debate isn’t the only source of tension around the digital euro, with policymakers also disagreeing on matters like privacy and accessibility. 

Whatever policymakers choose, their decisions may have ramifications beyond Europe. The digital euro could end up serving as a CBDC model for advanced economies around the world.

Sidekick Takeaway: While an offline-only CBDC may seem odd, lawmakers are concerned that an online version could take market share from private payment platforms and potentially impair innovation. Nonetheless, an offline CBDC would be far less useful for consumers in a digital age. 

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Falling Into Autumn: UK Inflation Dips in October 

In recent months, the UK economy has stood out from peers – for the wrong reasons.

This year, UK inflation has been consistently higher than in other developed countries. 

Still, the BoE has declined to raise interest rates. The UK’s central bank has argued both that the risks to growth are too high and that price pressures will likely fade soon.

On Wednesday, fresh inflation figures showed that the BoE’s position might be justified.

UK CPI declined to 3.6% in October, down from 3.8% in September. That dip might seem small, but it’s the first decrease since March.

In other words, UK price pressures could be on a downtrend, opening the door for more growth-boosting BoE rate cuts in December.

Inflation falls, but questions remain

Despite the dip in inflation, not everyone is convinced that the downtrend is here to stay:

• According to Grant Fitzner, chief economist at the Office of National Statistics, the decline was ‘driven mainly by gas and electricity prices.’
• That matters, since energy prices are notoriously volatile. A dip this month might not be sustained.
• Moreover, Chancellor Rachel Reeves is expected to unveil fresh tax hikes in the autumn budget next week. That could directly increase household bills if administered prices rise.

All told, it remains to be seen whether October’s decline is a one-off or the first of a persistent downward trend.

But that hasn’t stopped trader optimism about the BoE’s policy path. The market now expects an additional rate cut in December.

Sidekick Takeaway: If inflation really does continue its downward trajectory, the BoE’s patience may prove to be justified. However, price pressures fueled by additional tax increases could upset the bank’s forecasts, making it even more challenging to navigate the inflation-growth tightrope. 

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Safety First: UK Deposit Protection Limit Climbs

In recent years, the deposit protection limit for UK banks has been set at £85,000. 

This amount, backed by the FSCS, covers funds held at banks, building societies, and credit unions if an institution fails. 

As concerns over financial stability have risen, however, pressure has grown to increase the limit. Notably, 2023’s regional banking crisis in the US raised questions about the health of the UK’s own banks.

Following a multi-year review, the Prudential Regulation Authority announced this week that the deposit protection limit would increase to £120,000 per depositor, promoting greater confidence in the UK banking system. 

Deposit protection limit increase greater than expected

The increase to the FSCS deposit limit was greater than expected, with proposals for a new limit initially set at £110,000. However, rising inflation led to calls for a greater increase.

The new limit will take effect on 1 December. Depositors don’t need to take any action to benefit from the changes.

Aside from directly providing increased safety for depositors, the higher limit also has an added bonus for financial stability, making the type of bank runs that occurred in the US in 2023 less likely.

Sidekick Takeaway: Notably, the deposit protection limit for temporary high balances (often resulting from a property sale or life insurance payout) also increased from £1 million to £1.4 million. Overall, these changes should help promote greater confidence and stability in the UK banking system. 

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Notices

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𝘗𝘭𝘦𝘢𝘴𝘦 𝘳𝘦𝘮𝘦𝘮𝘣𝘦𝘳, 𝘪𝘯𝘷𝘦𝘴𝘵𝘪𝘯𝘨 𝘴𝘩𝘰𝘶𝘭𝘥 𝘣𝘦 𝘷𝘪𝘦𝘸𝘦𝘥 𝘢𝘴 𝘭𝘰𝘯𝘨𝘦𝘳 𝘵𝘦𝘳𝘮. 𝘠𝘰𝘶𝘳 𝘤𝘢𝘱𝘪𝘵𝘢𝘭 𝘪𝘴 𝘢𝘵 𝘳𝘪𝘴𝘬 - 𝘵𝘩𝘦 𝘷𝘢𝘭𝘶𝘦 𝘰𝘧 𝘪𝘯𝘷𝘦𝘴𝘵𝘮𝘦𝘯𝘵𝘴 𝘤𝘢𝘯 𝘨𝘰 𝘶𝘱 𝘢𝘯𝘥 𝘥𝘰𝘸𝘯, 𝘢𝘯𝘥 𝘺𝘰𝘶 𝘮𝘢𝘺 𝘨𝘦𝘵 𝘣𝘢𝘤𝘬 𝘭𝘦𝘴𝘴 𝘵𝘩𝘢𝘯 𝘺𝘰𝘶 𝘱𝘶𝘵 𝘪𝘯.