Optimism over artificial intelligence has reignited global technology stocks, with the Nasdaq 100 approaching a record high after a 2.8% jump on Monday. European and Asian markets followed, with the Stoxx Europe 600 technology index rising 0.7% and Taiwan’s Taiex gaining as much as 1.9% before closing 0.2% higher. Taiwan’s benchmark is now up more than 60% this year, placing it among the strongest-performing major equity markets as investors continue to anticipate sustained demand for AI infrastructure.

Meta has become a major catalyst for the latest rally after its Muse AI personal assistant became the most downloaded free app on Apple’s App Store. Its shares rose 11.4% on Monday and are now around 35% higher over the past month, while Intel and AMD gained 12.1% and 9.9% respectively. The Philadelphia Semiconductor Index rose 4.3%, as investors interpreted the success of AI applications as evidence that demand for the computing infrastructure behind them could remain strong. Furthermore, Jefferies economist Mohit Kumar said Meta’s performance was supporting expectations for increased semiconductor demand.

However, the latest gains come after a sharp unwinding of technology positions in June, when concerns over stretched valuations and rising oil prices unsettled investors. Barclays strategist Emmanuel Cau said the rally reflected cleaner positioning after that deleveraging, alongside lower oil prices and reports of US-China discussions over AI. The market is therefore balancing renewed enthusiasm for AI against questions over how much future growth is already reflected in valuations. The strength of the rally suggests investors continue to believe AI spending can generate substantial profits, but maintaining that confidence will require companies to translate record investment into sustainable earnings growth.

- Muthu Ramanathan

AI assistants are moving beyond providing information towards taking financial actions on behalf of consumers, creating a regulatory challenge for financial services firms and policymakers. The Financial Conduct Authority’s Mills Review has highlighted the potential for “agentic finance”, where AI tools could open bank accounts, alter investment portfolios or help consumers select financial products. The shift could fundamentally change how people interact with financial services, but it also raises questions over accountability, reliability and consumer protection.

The debate centres on whether existing financial regulation should be applied directly to AI tools that perform regulated activities. Schroders’ chief financial officer Meagen Burnett argues that treating AI as a financial service could be too narrow because general-purpose assistants also provide information on areas including healthcare, law and taxation. Restricting their access to financial information could leave consumers with less support when they seek guidance on savings, investments, insurance and credit. At the same time, AI-generated advice can be inaccurate or unsuitable, making transparency about when information is regulated particularly important.

The UK could instead focus on establishing standards around how AI interacts with consumers, including trusted sources of UK-specific financial data and clearer distinctions between regulated advice and general information. Firms could also help consumers identify when AI-generated answers should be checked or supplemented by human expertise. The challenge is therefore not simply whether AI should be regulated, but how regulation can preserve trust without preventing consumers from benefiting from cheaper and more accessible financial knowledge. As AI agents become increasingly embedded in everyday financial decisions, the regulatory framework could become as important to their adoption as the technology itself.

- Muthu Ramanathan

UK homeowners are facing higher mortgage costs as the rise in borrowing rates triggered by the Iran war begins to weigh on household finances. Around 1mn households have moved off fixed-rate deals since February, with the average borrower paying £50 to £70 more a month. A homeowner refinancing a £500,000 mortgage on a representative two-year fix could face more than £250 in additional monthly interest payments, equivalent to £6,144 over two years.

The increase reflects the transmission of higher market borrowing costs into household finances. The average quoted two-year fixed mortgage rate for borrowers with a 75% loan-to-value ratio rose from 3.97% in February to 4.92% in August, according to Bank of England data. Around 700,000 more homeowners are expected to leave fixed-rate deals between July and December, with an average outstanding balance of £164,000. Recent volatility in swap markets, which lenders use to price fixed-rate mortgages, has also prompted some banks to withdraw and reprice products.

The pressure could increasingly affect consumer spending as a larger share of household income is diverted towards debt servicing. Mortgage payments for first-time buyers already rose to 32.6% of take-home pay in the second quarter from 31.7% in the first, according to Nationwide, while an ONS survey found that around one-third of adults paying rent or a mortgage find these costs difficult to afford. Oxford Economics economist Andrew Goodwin warned that higher payments could push some borrowers into arrears or force them to sell. Consequently, the transmission from global conflict to domestic mortgages risks becoming an important drag on UK consumption and growth.

- Shrish Yalamarti

Until next time,

The Long and Short

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