Meta’s AI agent triggers an inertia sell-off, UK borrowing figures cloud the October budget, and global institutions admit the outlook is foggier than ever.

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 Meta’s new consumer AI agent, the UK’s worsening borrowing figures, and why global institutions are admitting they can no longer predict the road ahead.

But first, our number of the week…

3.99%

That was the average yield on global government bonds this week, the highest level since 2007. The global bond sell-off has been driven by stubborn inflation, strong economic data, and mounting fiscal concerns across major economies.

Sidekick Takeaway: Rising global yields have direct consequences for the UK. Even though many of the factors driving yields higher aren’t specific to Britain, higher borrowing costs increase the burden on an already stretched budget.

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

• Meta’s consumer AI agent Muse has been a surprise hit, but its ability to switch providers and cancel subscriptions on a user’s behalf could threaten business models built on inertia. A basket of consumer inertia stocks dipped 2.6% on Tuesday.
• The UK borrowed £18.3 billion in August, about £3.5 billion more than expected. With debt servicing costs at historic highs, Chancellor Healey faces a challenging October budget, with tax increases on capital gains and property looking increasingly likely.
• The OECD and JPMorgan have both admitted to heightened uncertainty in their forecasts as the Iran war and AI cloud the outlook. These admissions are increasing evidence that the global environment has become structurally more uncertain.

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.

Market Musings: Meta’s Consumer Agent Triggers Inertia Sell-Off

Meta’s consumer AI agent Muse has been a surprise hit, racking up millions of downloads and rave reviews just weeks after launch.

Muse is capable of completing digital tasks for users, such as booking restaurant reservations and making online purchases. Thanks to Meta’s user data, the agent is highly personalised.

Meta CEO Mark Zuckerberg has called Muse the ‘centrepiece’ of the company’s vision.

But as the first widely adopted consumer agent, Muse’s impact could extend well beyond Meta itself.

What the agentic economy could bring

If consumer agents become widespread, they could upend business models that depend on inertia and friction:

• Banks and insurers benefit from the hassle of switching providers. Consumers may not have the time to research competing options.
• Similarly, gyms and streaming platforms can benefit from ‘zombie subscriptions’. Consumers may keep paying fees for months without using a service.
• AI agents can potentially eliminate this friction by switching and cancelling on a user’s behalf. On Tuesday, a basket of consumer inertia stocks dipped 2.6%, even as the broader market was flat.

This dynamic – where AI agents erode the friction that underpins some business models – is similar to the vision presented in Citrini’s viral research report earlier this year.

Time will tell whether Muse is a one-off hit or a turning point in the agentic economy.

Sidekick Takeaway: Meta’s enormous capital expenditures have been an increasing source of anxiety for investors. Muse’s successful release should help allay those concerns, but it remains to be seen how successfully Meta can monetise its latest technology.

Feeling the Squeeze: UK Budget Could Feature Tax Hikes on High Borrowing

Fresh borrowing figures are making the upcoming UK budget look gloomier than ever.

Data released this week showed the UK borrowing £18.3 billion in August, about £3.5 billion more than forecasters expected.

In fact, the cost of servicing the UK’s debt is now at the highest level in history, squeezing other budget items.

With the UK already in a precarious fiscal position, Chancellor John Healey faces a challenging October budget – and tax increases look more likely than ever.

Where will the tax axe fall?

PM Andy Burnham has indicated a reluctance to raise taxes. But fiscal logic may leave his administration with little choice:

• On the campaign trail, Burnham committed not to raise several types of taxes. However, increased levies on capital gains and property could still be on the table.
• Healey is unlikely to adjust Labour’s fiscal rules to increase policy flexibility. But he may accept a smaller buffer against those rules to mitigate tax pain.
• 2024 and 2025 already saw some of Britain’s largest tax increases in history. While Burnham still commands broad popularity, another tax raid will test voter patience.

With global bond yields continuing to climb, the UK’s budget squeeze may get worse before October, not better.

Sidekick Takeaway: One of the most effective ways to increase tax revenue doesn’t require tax hikes at all. Stronger growth tends to boost tax receipts by increasing income, profits, and spending. Unfortunately, stimulating long-term growth in the UK has eluded governments for decades.

Crystal Brawl: Global Institutions See a Foggy Outlook

Some of the world’s leading financial institutions are admitting a harsh truth: they don’t know where the economy is heading.

The OECD’s latest outlook, released this week, noted that there’s ‘considerable uncertainty’ around how the economy will develop. The group outlined multiple potential scenarios and forecasts.

Similarly, JPMorgan recently informed clients that the war in Iran had rendered its market models almost useless. The bank’s analysts ‘simply don’t know how to model the endgame.’

These admissions point to a deeper possibility: the world has become structurally riskier in recent years. Uncertainty could be the new normal.

When the fog doesn’t lift

Compared with previous decades, several factors are making the world a more uncertain place:

• For many countries, rising public debt levels are narrowing fiscal space. Governments will need to respond, but it’s not clear what voters will accept.
• Internationally, geopolitical volatility has intensified. The Iran war, the Ukraine war, and rising US-China tensions have contributed to a fractured global order.
• The technological outlook has also become harder to price. While the capabilities of AI are staggering, few can predict how its economic impact will unfold.

The World Uncertainty Index, calculated by economists at the IMF and Stanford, has surged to historically elevated levels.

Forecasting isn’t necessarily dead. But the error bars around any single forecast have grown considerably.

Sidekick Takeaway: Rising uncertainty is also being reflected in higher bond yields, with future rates becoming harder to forecast. The recent rise in UK gilt yields has been partially driven by an increase in the ‘term premium,’ a measure of the extra compensation investors demand for holding long-term bonds.

Notices

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