Morning Note: Rachel Reeves Speech and updates from Assa Abloy and J&J.

Market News

President Trump said he wasn’t planning on firing Fed Chair Jerome Powell after a White House official told the media that the sacking would be coming soon. President Trump has been putting pressure on Powell to lower interest rates. The Chair’s term will come to an end next May. However, concerns remains about the erosion of monetary policy independence.

Trump said he would send letters to more than 150 countries notifying them their tariff rates could be 10% or 15%. This could be read as positive for some countries, providing some certainty with a lower rate than initially threatened. Trump also said he’s “indifferent” to a trade deal with the EU.

Germany rejected the EU’s €2 trillion budget proposal for its next seven-year period, starting in 2028, which includes €100bn in aid for Ukraine.

US equities moved higher last night: S&P 500 (+0.3%); Nasdaq (+0.3%). Seven & I Holdings tumbled after Couche-Tard pulled its $46bn acquisition bid. The positive tone continued into Asia this morning: Nikkei 225 (+0.6%); Hang Seng (+0.1%); Shanghai Composite (+0.4%). Brent Crude fell back to $67.80 a barrel, while gold trades at $3,330 an ounce.

The FTSE 100 is currently 0.4% higher at 8,959, while Sterling trades at $1.3390 and €1.1560. UK unemployment rose 4.7% in the three months to May, more than estimated. Diageo rose yesterday following the announcement that its CEO is to stand down with immediate effect, by mutual agreement. Until a permanent appointment is made, the CFO will assume the role of CEO on an interim basis. Guidance for FY25 and FY26 remains unchanged, and the company will report its FY25 full-year results on 5 August as planned.

Source: Bloomberg

Rachel Reeves Mansion House Speech – Invest, not save?

What it means for your money…

If you were expecting fireworks from Rachel Reeves’ Mansion House speech on Tuesday night, you might have been left slightly underwhelmed. In a way, that was the point – and perhaps, a welcome one. After weeks of political noise, the Chancellor’s tone was more “steady hand” than “revolutionary shake-up”.

Ahead of the speech, much of the chatter centred on potential reforms to ISAs – especially rumours that the cash ISA limit might be cut to nudge more savers into stocks and shares. That idea sparked swift backlash from building societies and high-profile consumer voices like Martin Lewis. Unsurprisingly, it didn’t make the final cut.

That said, this particular debate isn’t over. Reeves made it clear she’s not done with ISA reform, saying she plans to consult further over the coming months. The goal? To cultivate a stronger investment culture in the UK – a recurring theme in what was otherwise a cautious speech.

The Numbers Tell a Story

As part of the government’s new “Leeds Reforms” (yes, really), Reeves reminded us of a familiar problem: too many of us are sitting on too much cash. According to estimates, over 29 million adults in the United Kingdom have money languishing in low-interest accounts. At current rates (around 1.5%), that’s well below inflation.

Compare that to the average stock market return of around 9% over the past decade, and the difference is stark. Reeves gave an illustrative example: £2,000 invested today could grow to £12,000 over 20 years in equities, versus just £2,700 in cash. That’s a potential £9,000 gap – enough to turn heads.

Of course, markets don’t always behave so obligingly, and savers can get more than 1.5% on cash if they’re willing to shop around. But the government’s argument remains solid: for long-term goals, equities have historically offered far better returns than savings accounts.

Changing the Narrative Around Risk

Reeves struck a chord when she addressed how risk is often framed. “We’ve been too quick to warn people of the dangers of investing, without balancing that against the long-term benefits,” she said. It’s a fair point. The industry’s cautious messaging has often tilted too far in one direction – especially when you consider how inflation can quietly ravage the real value of cash over time.

To help change perceptions, the government plans to roll out a national campaign in 2026 to promote retail investing – an echo of the famous “Tell Sid” adverts from the privatisation era. The idea is to get more people comfortable with the idea of investing, especially those who might currently be frozen out by fear or misinformation.

Some Movement on ISAs – But No Revolution (Yet)

While headline-grabbing reforms were thin on the ground, there were a few technical tweaks worth noting. From April 2026, long-term asset funds (LTAFs) will be permitted within stocks and shares ISAs. These funds offer exposure to less liquid investments – think infrastructure or private equity – and are designed with long-term savers in mind. The government hopes this shift will help channel more capital into areas that support the UK economy, while offering the potential for better returns.

It’s a measured but meaningful step, especially when paired with the government’s broader ambition to simplify the ISA landscape. Right now, there are six types of ISAs, which is arguably five too many. A streamlined, more intuitive system would be welcomed by investors and advisers alike.

Support Without the Strings of Full Advice

Also from 2026, a new FCA-led initiative called “Targeted Support” will allow banks and providers to guide customers with tailored nudges – such as flagging when a client’s money is sitting idle in low-yielding accounts. It’s a half-step between general guidance and regulated advice, designed to address the gap for those who don’t – or can’t – seek full financial planning. This is a pragmatic solution to a widespread problem. Just 9% of UK adults accessed financial advice in the past year, with many instead turning to social media or informal sources. That’s a risky trend, especially as personal finance decisions become increasingly complex.

And What About Pensions?

Despite some pre-speech speculation, there were no major announcements on pensions – just a reiteration of the Mansion House Accord, where large pension schemes have pledged to invest more in private markets.

Still, the bigger question remains: are current pension contribution levels enough to deliver a decent retirement? Most experts would say no. But with employers already under pressure from rising taxes and wage costs, pushing for higher contributions right now would be politically and economically tricky.

The self-employed – a group often left out of pension reform conversations – also got no mention. That’s disappointing considering how underserved they are when it comes to long-term savings options.

What Next?

While the Mansion House speech was light on drama, it laid the groundwork for more meaningful reforms at the Autumn Budget. There’s clear intent to reshape ISAs, improve investment access, and modernise how financial guidance is delivered.

The message to private investors? Don’t expect sweeping change overnight – but do pay attention. With inflation still a concern and cash offering limited upside, the case for long-term investing is only getting stronger.

Company News

Assa Abloy has today announced its Q2 results which were better than market expectations. Against a backdrop of challenging market conditions, the group’s decentralised structure and agile approach continues to be a great advantage. Ahead of this morning’s analysts’ call, the shares have been marked up by 7% in early trading.

Assa Abloy is the global leader in access solutions to physical and digital places, with a portfolio of well-known global and local brands, such as Yale, Union, HID, and Lockwood. Products include doors, sensors, locks, alarms, fencing, gates, and identity systems. The key long-term drivers of the $100bn industry are increased demand for safety and security; growing urbanisation; increased emerging market wealth; the shift to new digital and electronic technologies; the development of sustainable buildings to meet climate change objectives; and changing market regulations. Furthermore, one of the legacies of the pandemic is likely to be a shift towards touchless (hygienic) activation points, automated doors, and location services, which also provide recurring revenue from licenses and software. As the brand leader in most markets, with a large installed base and strong distribution channels, we believe Assa Abloy is well placed to take advantage of these trends.

The long-term financial target is to generate annual sales growth of 10%, half organically and half from acquisitions, and to earn an operating margin of 16%-17% over the business cycle. The aim is to actively upgrade the installed base, generate more recurring revenue, increase service penetration, and expand exposure to emerging markets. The group is on track to exceed its target to generate SEK 25bn of profit from SEK 150bn of sales by 2026, with new 2028 targets – SEK 35bn of profit from SEK 220bn of sales – outlined at the last Investor Day.

The group has previously said it needs to generate organic top-line growth of 3% to offset inflation and drive the margin forward, although clearly more was needed to recoup the elevated raw material cost increases experienced over the last couple of years. The group has a strong track record of innovation – 550 new products were launched in 2024 – and aims to generate 25% of sales from products launched in the last three years.

The company also has a very strong track record on cost control. A new Manufacturing Footprint Programme, the group’s tenth, was launched during earlier in the year. The expected restructuring cost is SEK 1.3bn, with a pay-back time, including capital expenditure, of less than two years. The programme is expected to generate annual savings of about SEK 1bn (equivalent to 60 basis points of margin) and comprises almost 60 projects and, similarly to previous programmes, includes factory, warehouse and office closures across all divisions.

During the second quarter of 2025, the macroeconomic environment remained challenging, with geopolitical uncertainty fuelled by tariff concerns. However, strong exposure to the aftermarket continues to demonstrate its value, while a decentralised structure and agile approach continues to be a great advantage.

Net sales were flat at SEK 38.0bn, slightly above the market forecast of SEK 37.5bn. In organic terms, which strips out the impact of acquisitions & disposals (+5%) and currency (-8%), sales rose by 3%, versus +1.7% expected by the market. Growth was made up of 1% volume and 2% price growth. The company started to push through tariff-related price increases at the end of the quarter.

Despite market uncertainty, the company is seeing strong demand for upgrades to electromechanical and digital solutions. Sales grew 12% in the quarter, adjusted for currencies.

By business division, Global Technologies (a separate global division) delivered ‘strong’ organic growth of 8%, with positive development in both HID (which is now back to a normal growth pattern) and Global Solutions.

Entrance Systems (also a separate global division) nudged up by 1%, with very strong growth in Perimeter Security, good in Doors & Automation and Pedestrian, but down in Industrial.

In the geographical divisions, Americas delivered ‘good’ organic growth of 4%, with high single-digit growth in the North America Non-Residential segment and stable development in the North America Residential and Latin America segments. The company saw strong growth in the aftermarket, fuelled by robust demand for electromechanical upgrades.

The EMEIA region was down by 1%, primarily due to some delays in project businesses and a continued weak residential market. Asia Pacific also suffered a small 1% decline, as the residential markets remain weak. Growth was strong in Pacific & Northeast Asia but declined significantly in Greater China.

Operating income increased by 1% to SEK 6.16bn, slightly above the market forecast of SEK 5.86bn. The company achieved ‘excellent’ operating leverage, supported by price/cost tailwind and savings from the Manufacturing Footprint Programs (which are proceeding to plan), and continuous efficiency improvements. The operating margin rose from 16.0% to 16.2%, despite some dilution from M&A. This is better than the 15.6% expected by the market and well above the previous quarter (14.9%) which was impacted by one-off margin dilution. EPS rose by 1% to SEK 3.57, versus the consensus forecast of SEK 3.47.

Operating cash flow fell by 3%, albeit still strong at SEK 5.45bn, with a corresponding cash conversion of 103%. The group’s financial position remains robust, with net debt to EBITDA at 2.3x, slightly below the previous quarter. Looking forward, gearing is expected to fall rapidly thanks to strong free cash flow generation. For 2024, the group declared a dividend up 9% to SEK 5.90, and equal to a yield of 2%.

M&A will continue to be a core driver of growth, with over 900 potential acquisition targets identified globally. The focus is on acquiring new customers in the core business, extending the core offering, accessing new technologies to deepen the group’s competitive position, and increasing service capacity. However, there is some concern that recent M&A has been skewed towards lower value-added segments (e.g. DIY, window and door hardware components, fencing products, gates, padlocks, cylinders, etc). Although these acquisitions fit the purpose of growing earnings at lower multiples than the group average, they also dilute the group’s exposure to the fast-growing and structurally more attractive electromechanical and mobile segments, potentially posing a risk to long-term valuation multiples.

The 2023 purchase of HHI for $4.3bn fills a strategic gap in its US residential business. Although the residential market remains subdued, the unit is performing well, with integration proceeding to plan and the company is confident it will be able to realise the five-year synergy target of $100m. Elsewhere, M&A activity remained buoyant with five deals in Q2 with combined annual sales of about SEK 800m. The pipeline remains strong, and the group still plans to make its usual 15-20 acquisitions per year. Earlier in the year, the group competed the sale of its underperforming Citizen ID business. We note the US unit will now remain with Assa Abloy.

Regarding potential tariffs, the company has said that 70% of US sales are produced from outside the US, including 15% elsewhere in North America and 10% from China, some of which is exempt or could be rerouted. To offset the additional costs, the group estimates it needs to increase prices by 4%-5% in the US. This is in addition to the 1.0%-1.5% price rises previously anticipated at the group level.

Assa Abloy doesn’t usually provide guidance but highlights that prevailing market conditions are ‘challenging and uncertain’. However, management has expressed strong confidence that the company will achieve positive volume growth this year despite continued weakness in China and in the US residential market and will soon return to its target margin range of 16-17%.

The risk to this optimism is driven by a combination of interest rates, labour shortages, and tariffs. Management is dedicated to mitigating any impact from potentially negative changes in demand, through local agility and focus on cost-control. Assa has previously said that during both the global financial crisis in 2008/09 and the Covid-19 pandemic, its decentralised operational model and agile cost base provided flexibility. In addition, the group’s large exposure to after-market service and its structural pricing power leaves the business better positioned to navigate through these uncertain times. This leaves the group relatively well protected in a world of increased tariffs.

Source: Bloomberg

Yesterday at lunchtime, Johnson & Johnson released positive Q2 results and raised its guidance for the full year. In response, the shares were marked up by 2% in US trading hours.

J&J is a global healthcare company with leading positions in pharmaceuticals and medical devices. The group has more than 20 products/platforms each with sales of more than $1bn.

More than 75% of sales come from No.1 or No.2 global market share leading positions. The group’s strategy is to grow sales faster than the market, and to grow earnings faster than sales. Given its broad spread of businesses, J&J is considered the bellwether of healthcare companies, providing a good read-across for a range of other stocks.

The company’s former Consumer Health unit has been spun off and now trades as a separate listed company (Kenvue). J&J still owns around 9% of the stock, a stake currently worth around $3.7bn.

In the three months to 30 June, reported sales grew by 5.8% to $23.7bn, slightly better than the market forecast of $22.8bn. On an adjusted operational basis, which excludes the impact of acquisitions and disposals, growth was 3.0%, with US domestic sales (+5.0%) outpacing international sales (+0.4%). Adjusted EPS slipped by 1.8% to $2.77, a touch ahead of the consensus forecast of $2.68.

The group’s performance demonstrates continued strength and resilience across both of its businesses. Innovative Medicine (i.e., Pharmaceuticals, 64% of sales) grew by 2.4% to $15.2bn.

Growth was driven by a broad range of products, with 13 brands growing in the double digits, in particular its cancer drug, Darzalex. MedTech (i.e., medical devices, 36% of sales) increased by 4.1% to $8.5bn, driven primarily by strong momentum in Cardiovascular, Surgery, and Vision.

The group made significant pipeline progress including the approval of Imaavy, priority review for TAR-200, and data for Carvykti in myeloma, and the continuation of a clinical trial for the group’s general surgery robotic system, Ottava

J&J has a very strong balance sheet and ended the quarter with net debt of $32bn on the back of free cash flow generation of $6.2bn. The group has consistently invested in organic growth – R&D spend was $3.5bn in the quarter – and, as a result, around 25% of sales come from products launched in the last five years. Around $15bn was deployed in strategic, inorganic growth opportunities including the Intra-Cellular Therapies acquisition closed in April.

 J&J has raised its dividend for more than 60 consecutive years. In the current quarter, the payout was raised by 5% to $1.30 per share, implying a full-year yield of 3.3%.

The company reduced its expectations for tariff-related costs from $400m to $200m for the year, citing the Trump administration’s pause on levies on China and other retaliatory tariff measures.

Guidance for 2025 was adjusted upwards: adjusted operational sales growth of 3.2%-3.7% (vs. 2.0%-3.0% previously) and adjusted operational EPS growth of 8.7% to $10.80-$10.90 (vs. $10.50-$10.70 previously). In the Innovative Medicine division, the group expects more pronounced impact from newly-launched products as the year progresses. In MedTech, the group expects normalised procedure volume and seasonality.

Source: Bloomberg