Weekly market update: Sterling and gilts stabilise as Starmer fends off calls to quit

This week has been a difficult one for prime minister Keir Starmer as speculation about his future as prime minister weighed on sterling and UK gilts. By sacking his chief of staff, head of communications and the head of the civil service, he appears to have done enough in the short term to hold on to his job and this helped gilt values recover. However, his survival appears as much to do with the lack of a serious challenger with the Labour party, at least for now. Gilt yields were also pushed down by disappointing GDP growth in the final quarter of 2025. The economy expanded by just 0.1% and this adds to the case for further rate cuts from the Bank of England.

Meanwhile, investors continue to identify potential losers from the introduction of cheap automated AI services. This week was the turn of wealth managers after accounting, publishing and advertising companies came under scrutiny last week. The raise of AI-driven alternatives raises big questions both for how incumbent businesses deal with the rise of low-cost alternatives, but also how AI firms position themselves as these incumbent businesses are some of the largest potential users of AI as they streamline their services.

Tech: new AI tools scuttle wealth managers and brokerages

UK and US wealth management stocks fell sharply after US fintech Altruist unveiled an AI-powered tax-planning tool capable of building personalised client strategies in minutes. St James's Place led the decline, dropping more than 16.4%, while AJ Bell lost 8% and Quilter and Aberdeen Group each fell over 6%. The contagion spread across Europe, hitting Julius Baer, UBS and Amundi. The sell-off followed a similar rout in US brokerages, where Charles Schwab fell 10%, Raymond James lost 7% and Morgan Stanley shed 4%, wiping out year-to-date gains for several of those names.

The episode fits a broader pattern of AI disrupting existing industries as software stocks were hammered just days earlier following Anthropic's launch of new business tools, and insurance brokers sold off after OpenAI announced a ChatGPT integration. Meanwhile, Schroders has accepted a buyout offer from US asset management firm Nuveen. The deal values Schroders at £9.9bn which represents a premium of around 30% to the pre-offer share price. Natwest has agreed to buy UK wealth manager Evelyn Partners from its private equity owners for £2.7bn. The acquisition is aimed at diversifying its revenue but saw its shares fall around 6%.

Japan: landslide election victory brings further equity gains

Japanese markets gained after prime minister Sanae Takaichi secured a huge election victory. The Liberal Democratic Party regained control the lower house of the Japanese parliament in the biggest election win since the second world war. Japanese equities made big gains in advance on Sunday’s vote as opinion polls indicated Takaichi was on track for a big win and make it easier to get her plans for economic stimulus passed by parliament. Japanese equities made further gains this week, as investors see faster economic growth from planned tax cuts as well as greater investment in defence and tech companies.

Japanese government bond yields have risen considerably since Takaichi became prime minister. Yields pushed up further as government bonds sold off after Takaichi called the election as investors feared an increase to the already huge government deficit. However, Japanese government bonds rallied following the election as Takaichi pledged not to use government borrowing to pay for tax cuts and pledged to reduce Japan’s debt as a portion of GDP. The Japanese yen fell sharply in January, but it strengthened this week as the Bank of Japan is expected to steadily increase rates.

Bonds: Google raises $32bn from global corporate bond sales

Alphabet raised around $32bn from bond sales to back its huge investment in AI infrastructure. The money raising was anchored by a $20bn bond issue in the US but also raised money from bond investors in the UK and Switzerland - included a rare 100-year UK bond. Investors demand was strong. The shortest tranche priced at just 0.27 percentage points over Treasuries, while the century bond attracted orders of nearly ten times the amount on offer. Alphabet plans to spend up to $185bn on AI, roughly double last year's figure, as it builds out AI infrastructure around its Gemini assistant.

Alphabet's deal is part of a broader wave of fund raising. The five major hyperscalers issued $121bn in US corporate bonds last year, and Morgan Stanley estimates that figure could reach $40bn in 2026, helping to drive overall investment-grade issuance to a record $2.25tn. The premium over government bonds is low, with the yield on investment-grade bonds near post-financial-crisis lows. However, some portfolio managers are growing cautious about concentration risk and whether yields adequately compensate for the scale of AI-related spending commitments ahead.

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