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 how defence spending in the UK could impact growth, unresolved issues threatening the US-China trade truce, and AI putting 200,000 European banking jobs at risk.

But first, our number of the week…

66%

That’s how much stock in Google parent Alphabet climbed in 2025, making it the top performer in the Magnificent Seven last year. In comparison, Nvidia came in second place with 40% gains.

Sidekick Takeaway: Alphabet’s performance is particularly impressive given that the firm was widely seen as arriving late to LLM development, being outpaced by competitors like OpenAI. Nonetheless, the firm now finds itself well ahead of peers like Microsoft, Apple, and Meta.

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

• The UK has pledged to raise defence spending to 3.5% of GDP by the mid-2030s, requiring about £800 billion in fresh funding. Research shows defence spending can have a strong multiplier effect on growth, though the net economic impact will depend on how expenses align with Reeves’ fiscal rules.
• Despite October’s US-China trade truce, tensions persist between the two countries over rare earth exports, chip sector practices, and Taiwan arms sales. Without a comprehensive agreement covering these core areas, the truce could unravel in 2026 with global economic ramifications.
• Morgan Stanley reported that 200,000 European banking jobs could be replaced by AI over the next five years, representing 10% of the industry’s workforce. While disruptive, AI-driven efficiency could help European banks improve their return figures to better compete with American peers.

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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Boost or Bust: How Will UK Defence Spending Impact Growth?

In an effort to improve the state of Britain’s public finances, the UK government has implemented broad cost-cutting measures over the past several years.

Those include cancelling major infrastructure projects and slashing departmental spending. 

Yet there’s one area in which the government has committed to spend more, not less – defence.

By the middle of the next decade, the UK has pledged to lift defence spending to 3.5% of GDP (from around 2.4%, currently).

Critics have noted that meeting that goal may require huge borrowing and unsustainable expenses.

However, elevated defence spending could also end up improving the UK’s public finances by boosting growth.

Defence spending could multiply growth

Based on a recent assessment, the UK’s defence commitments are expected to require about £800 billion in spending by 2040. 

The government allocated £60 billion to defence in the most recent fiscal year, indicating that substantial spending increases may be necessary. 

However, defence tends to have a surprisingly strong impact on growth:

• Academic research indicates that, in advanced economies, £1 of defence spending tends to boost GDP by about £1.8 after one year. 
• Defence spending typically involves substantial physical investment and job creation, often in manufacturing and construction, leading to a strong multiplier effect.
• At the same time, any impact will depend on how funds are spent, and in what environment – spending during an expansion tends to have smaller effects. 

The bottom line: the UK’s plans for elevated defence spending will almost invariably result in increased government borrowing.

But the net effect on public finances could still end up being positive through higher growth.

Sidekick Takeaway: Aside from the economic effects, there’s another open question about the UK’s defence commitments – how they align with Reeves’ fiscal rules. If a majority of these expenses are categorised as day-to-day spending and need to be funded with taxes, any growth impacts could be dulled. 

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Handle With Care: The Fragile US-China Trade Relationship

The US and China are the world’s two largest economies. Combined, they account for roughly 43% of global GDP and 48% of global manufacturing output.

As a result, the US-China trade relationship matters far beyond just their respective borders. 

Heading into 2026, that relationship looks increasingly fragile. While Donald Trump and Xi Jinping signed a trade truce in October, the agreement was far from a lasting peace.

In fact, unresolved issues between the US and China could threaten a renewed tariff spat in the near future.

US and China face unresolved issues

Since signing the truce, neither side has raised fresh tariffs. Nonetheless, smaller incidents in recent weeks could trigger a larger escalation:

• Despite the deal between Trump and Xi, US buyers are complaining that China continues to curb exports of rare earth metals. 
• Meanwhile, a recent US report concluded that China’s chip sector operates with unfair trade practices, long seen as a key flashpoint.
• Finally, China has implemented sanctions against dozens of American companies and executives in the wake of a US arms sale to Taiwan. 

All three areas – rare earths, chips, and Taiwan – mark core areas of disagreement between the world’s two largest economies.

Without a comprehensive deal, the existing trade trace could unravel in 2026, with global ramifications. 

Sidekick Takeaway: When it comes to European geopolitical interests, the continent once again risks being caught in the crossfire of elevated tensions in 2026. The tenuous US-China trade peace will likely only accelerate the EU’s de-risking agenda and defence spending ramp-up. 

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Digital Banker: AI Threatens 200,000 European Banking Jobs

Rapid advancements in AI have threatened to upend employment in many industries, and finance is no different.

However, a recent report from Morgan Stanley indicates that the scale of change could be greater than previously thought. 

According to the firm, about 200,000 banking jobs in Europe are under threat from AI over the next five years. That amounts to roughly 10% of the industry workforce.

But while layoffs could disrupt the sector, they might also prove necessary for European banks to compete with their global counterparts. 

AI could accelerate European banking competitiveness

Investors have long complained about the performance of European banks, especially compared with their American peers. 

While US banks have typically achieved an ROE (Return on Equity) of 10-12%, European banks have frequently struggled to break the 6-7% range.

In part, that’s due to greater regulatory pressures. But improved efficiency from AI could help offset those pressures and improve investment performance. 

In fact, major Dutch bank ABN Amro has already announced plans to cut about a fifth of its staff by 2028, citing AI as a major reason why.

Sidekick Takeaway: While most banks appear to be utilising AI to streamline administrative and compliance roles, these tools are also increasingly being used to support banking functions directly. UBS recently unveiled a tool that creates lifelike avatars of its analysts in video format – although industry and client reactions have been mixed. 

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Notices

Sidekick Money Ltd is a company registered in England and Wales (No. 13882980). Sidekick Money Ltd is authorised and regulated by the Financial Conduct Authority (FRN 984829). Our address is 21-33 Great Eastern St, London, EC2A 3EJ.

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