The week that was …
Economic round-up
British businesses curb price rises
UK businesses expect to increase their prices slightly less quickly over the year ahead, according to a survey published by the Bank of England on Friday. The monthly Decision Maker Panel showed companies see price growth of 3.8% in the coming 12 months, slowing from 3.9% in the previous survey. Read more from Reuters here
Energy costs push up Eurozone inflation
Headline inflation in the Eurozone increased from 2.9% in July to 3.3% in August, which was higher than consensus expectations. The year-on-year increase in energy inflation is now 14.3% although core inflation did fall back to 2.4% over the month, with food inflation stable. Read more from Think ING here
Demand boosts US services in August …
US services sector activity picked up in August as strong demand lifted new orders and drove input prices higher. The data suggests inflation could remain elevated and compel the Federal Reserve to hike US interest rates before the end of this year. The Institute for Supply Management (ISM) said its non-manufacturing Purchasing Managers’ Index (PMI) advanced to 55.4 last month from 54.1 in July. Read more from Reuters here
… but manufacturing activity eases
US manufacturing activity eased in August with a slowdown in new orders. Manufacturers are worried higher prices resulting from the Middle East conflict and tariffs could undercut sales. The ISM said its manufacturing PMI fell to 54.6 in August. Read more from Reuters here
Non-farms payroll data surprises Wall Street …
The US economy added 162,000 jobs in August, smashing Wall Street expectations. This suggests the labour market retains momentum ahead of the crucial Federal Reserve meeting on US interest rates on 15 and16 September. The data showed a rebound from July, when the world’s largest economy added just 21,000 jobs. Read more from the FT here
… including 38,000 new jobs in private sector
Private-sector employment increased by 38,000 jobs in August, according to the ADP National Employment Report. For all private-sector workers in the US, base pay rose 3.2% and gross pay was up 4.7% year-on-year, according to ADP Pay Insights. Read more from ADP here
China manufacturing expands but confidence slips
China’s manufacturing sector expanded at a faster pace in August as output, new orders and exports all accelerated. The manufacturing PMI for August rose to 51.5 from 50.9 in July. New export business posted its sharpest rise in six months, but confidence is slipping. Read more from Reuters here
Markets round-up
Government bond yields on the rise
Global government bond yields climbed sharply last week as investors sought greater compensation for heavier borrowing, energy price pressures and persistent inflation uncertainty. Deglobalisation and greater geopolitical fragmentation could make inflation structurally more persistent than it was during much of the 2010s. Read more in ‘In focus’ below and from CNBC here
Norway sovereign fund overhauls bond portfolio
The manager of Norway’s $2.3tn (£1.7tn) sovereign wealth fund has proposed an overhaul of the government bond portfolio that could see it slash its holdings of US treasuries by about $80bn. Norges Bank Investment Management recommended reducing the overall weighting of government debt in the fund’s benchmark bond index from 70% to 50% – effectively cutting the fund’s global government bonds allocation by about $106bn. Read more from the FT here
Yen spikes higher versus dollar
Having hit a four-decade low against the dollar six weeks ago, the yen revived last week, rising 2% against the greenback. This was the largest rise markets have seen since a rare joint US and Japan intervention to support the ailing currency at the end of July. Read more from Reuters here
“If debt interest were a government department in Washington, it would now have the second biggest budget.
Selected equity and bond markets: 28/08/26 to 04/09/26
| Market | 28/08/26 (Close) |
04/09/26 (Close) |
Gain/loss |
|---|---|---|---|
| FTSE All-Share | 5842 | 5836 | -0.1% |
| S&P500 | 7712 | 7719 | +0.1% |
| MSCI World | 4986 | 4987 | Flat |
| CNBC Magnificent Seven | 445 | 448 | +0.7% |
| US 10-year treasury (yield) | 4.72% | 4.80% | |
| UK 10-year gilt (yield) | 5.07% | 5.06% |
Investment round-up
Ninth month of positive fund flows – IA
The Investment Association (IA) reported net retail fund inflows of £278m in July, marking nine consecutive months of positive flows. This represented a sharp decline from the £3.6bn recorded in June, however, with equity funds particularly weak. UK equities saw significant outflows of £1.6bn, the highest figure since January 2025.
RLAM announces interim CEO
Royal London Asset Management (RLAM) has named Daniel Cazeaux as interim chief executive following Hans Georgeson’s resignation. Currently group CFO Cazeaux will hold the role until a permanent successor is appointed.
JPM’s Skibeli to retire
Helge Skibeli, lead manager of the £3bn JPMorgan Global Growth & Income investment trust, has announced he will retire in 18 months’ time. Skibeli has revived the trust since taking over the management seven years ago. His responsibilities will transition to co-managers Sam Witherow and James Cook.
HL opens up to crypto
Hargreaves Lansdown has listed nine bitcoin and ether exchange-traded notes – issued by Bitwise, CoinShares, Invesco, BlackRock’s iShares, 21 Shares and WisdomTree – on its website. The move comes 11 months after regulators ended a ban on retail access.
Ninety One wins Standard Life mandates
Ninety One has won a mandate from Standard Life to manage its emerging markets equity and Asia ex-Japan strategies. The portfolios have balanced exposure to growth, quality, value and momentum through the cycle.
Seraphim launches space ETF
Seraphim Space has launched the Seraphim New Space UCITS ETF, a fund tracking a proprietary index of 23 publicly listed companies spanning satellite manufacturing, launch and access, connectivity and Earth observation. The ETF has been built in partnership with HANetf and lists on the London Stock Exchange under the ticker SPCE with a total expense ratio of 0.75%.
JPMAM AoV report shows funds in good health
JP Morgan Asset Management (JPMAM) has found all 44 of its funds demonstrated value in its assessment of value (AoV) report for the year to 30 April 2026. Although all funds received a green light, six strategies were still red-flagged on performance issues, including the JPM Global Macro ESG and Opportunities funds.
Columbia Threadneedle launches active EM ETF
Columbia Threadneedle Investments has launched an active emerging markets ETF, the fourth strategy in its range. The CT QR Series Emerging Markets Equity Active UCITS ETF combines quantitative research, active stock selection and integrated ESG analysis and will be listed on the London Stock Exchange, Deutsche Börse Xetra and SIX Swiss Exchange.
Schroder adds two active ETFs
Schroders has launched two actively managed ETFs to identify value and quality opportunities in Europe and Japan. The Schroder Europe Equity Active and Schroder Japan Equity Active UCITS ETFs will be benchmarked to the MSCI Europe and MSCI Japan indices respectively.
… and the week that will be
Eyes on inflation data …
Markets will zero in on inflation this week as data on producer prices will give investors an initial glimpse at August’s inflation trends. Thursday’s Producer Price Index report comes out a day ahead of the CPI data. Economists polled by Reuters expect a 0.4% monthly rise in August CPI and a 0.2% rise in the core measure, which excludes the volatile food and energy components. Read more from Reuters here
… and consumer confidence
An update on US consumer sentiment at the end of this week should show whether higher energy costs are hitting consumption. Americans say they are driving less – and data from the Bureau of Transportation Statistics backs them up. Consumers are also spending carefully, with retail sales stagnating. Results from a number of big consumer companies – including American Eagle Outfitters, Casey’s General Stores and Macy’s – will offer further insights into US consumption. Read more from Investopedia here
The week in numbers
UK GDP growth: Consensus forecasts have three-month average growth in UK GDP in July at 0.3%, down from 0.4% in June.
Eurozone interest rates: Following its meeting on 9 and 10 September, the European Central Bank is widely expected to raise interest rates from 2.25% to 2.5%. The bank may provide further commentary on the outlook for inflation and potential policy moves.
US inflation: Consensus expectations for US consumer price inflation is a 0.4% month-on-month rise in August – versus 0.1% in July – while holding year-on-year at 3.4%. Core inflation, which excludes food and energy prices, is expected to be 0.2% month-on-month and 2.4% year-on-year in August, versus 0.2% and 2.5% respectively in July.
US consumer sentiment: Consensus forecasts for the preliminary September reading of the US Michigan consumer sentiment index are for a fall to 51.5, from 51.7 in August.
China inflation: The August reading of China’s inflation data is due to be released on Wednesday. The July reading had prices up 0.5% year-on-year and down 0.1% month-on-month.
In focus: Tick, tick, tick
Andy Burnham may find an old line of Bill Clinton’s especially resonant as the week progresses. “You mean to tell me,” the then US president fumed, “that the success of the programme and my re-election hinge on the Federal Reserve and a bunch of frickin’ bond traders?” Only he didn’t say ‘frickin’. With each tick higher in yields, the new UK prime minister and his chancellor John Healey see their fiscal headroom squeezed and their choices grow ever harder.
The big problem for Burnham is there may simply not be a lot he can do about the situation. Whereas his predecessor-but-two Liz Truss could row back from her more extreme policies – and, ultimately, resign – warm words from Burnham on fiscal responsibility are unlikely to solve this particular crisis. The problem lies with the state of the global bond market – and the US administration in particular. As such, the solution is not in his hands.
Global bond yields have been ticking higher for much of the year and, argues James Klempster, deputy head of multi-asset at Liontrust, while the immediate catalysts are varied, the biggest problem is the overall level of debt. “In recent years, the increase in overall government borrowing has been material – whether it be, in the first instance, to combat the impact of the global financial crisis or, more recently, the impact of Covid-19,” he says.
“Overall, though, governments seem to be pretty wedded to the idea of borrowing to allow them to spend. And the scale of government debt has grown and grown over recent years, to the point that earlier this month, the outstanding US national debt hit $40tn [£30tn].”
The vast amounts of debt there now is to absorb allows global bond markets to be more discerning and thus demand higher compensation for the decreasing creditworthiness of governments. “If you are increasing your debt pile all the time, you not only have to replace that but add to it by issuing additional debt on top,” notes Klempster. US debt costs now absorb $1.25tn each year – equivalent to 18.5% of federal government revenue. If debt interest were a government department in Washington, it would now have the second biggest budget.
Depending on the cohorts of bonds being repurchased, the likelihood is they will have been issued at far lower yields than replacement bonds still being issued to fund the US government’s yawning 6% budget deficit.”
This situation also brings into play the phenomenon of ‘fiscal dominance’, whereby government debt is so huge that central banks have to prioritise government financing over controlling inflation. This may explain why longer-dated bonds, in particular, have weakened – bond markets are losing faith in governments’ ability to control inflation over the long term.
Gemma Cairns-Smith, an investment specialist at Ruffer points to other structural factors driving higher bond yields, however, noting: “Globalisation, geopolitical stability and access to cheap labour, energy and capital are giving way to geopolitical fragmentation, protectionism, ageing workforces and more activist fiscal policy.”
The caprices of the current US administration may be a further factor as markets are losing trust in the Federal Reserve’s resolve to address inflation. President Donald Trump’s vocal interventions on interest rate policy and the US central bank’s apparent reluctance to raise rates have tested bond investors’ faith. This was in evidence ahead of the Jackson Hole meeting – until Fed Chair Kevin Warsh sought to reassure the markets that he remained committed to tackling inflation.
Interventions from US treasury secretary Scott Bessent have not been entirely helpful either – and his claims to be buying back long-dated bonds for liquidity reasons have not convinced very many. “The sums are a drop in the ocean,” points out Alistair Irvine, a fund manager on the Jupiter Merlin multi-manager range.
“Depending on the cohorts of bonds being repurchased, the likelihood is they will have been issued at far lower yields than replacement bonds still being issued to fund the government’s yawning 6% budget deficit. So the blended nominal interest cost will still be rising.”
Irvine believes Trump and his treasury secretary are “wasting their time and taxpayers’ dollars again”. They continue to spend incontinently, with no apparent inclination to curb spending. The US could ill-afford the tax cuts in the One Big Beautiful Bill but pressed ahead with them anyway.
This could mark a step towards financial repression, with policymakers seeking to contain government borrowing costs even as inflation remains elevated.”
Even less crowd-pleasing measures aside, the intervention in the market is one of the few options available to US policymakers, but – in addition to burning more taxpayer money – it has been largely ineffective, with long-dated yields ending August where they started it.
“It raises the prospect that policymakers may increasingly seek to lean against further increases in yields,” says Cairns-Smith. “This could mark a step towards financial repression, with policymakers seeking to contain government borrowing costs even as inflation remains elevated.”
The inconvenient truth, of course, is that bond markets are being entirely rational in pushing up the risk premium. Rising bond yields are not a liquidity problem, but a fundamentals one. And, with no inclination to tackle the fundamentals side of equation, prices are likely to resist any short-term interventions.
For policymakers in the UK – and anywhere else monetary policy is influenced by that of the US – it means tackling high borrowing costs is not necessarily in their gift. Even so, the UK still has the potential to shine in comparative terms as investors are receiving a higher yield from its debt than in equivalent markets. In other words, UK debt levels may not look great, but they are better than those of Canada, France, Italy, Japan or the US.
That being so, Liontrust’s Klempster says the team have moved their gilt allocation up in their tactical asset allocation process. “We are getting a real yield from gilts,” he explains. “On top of that, with yields significantly greater than zero, it means that when you get periods of market stress, these yields can come down, which will give you some capital appreciation and diversification benefit against the equity portion of your portfolio.”
Nevertheless, it all puts chancellor Healey in a precarious position ahead of his Budget debut next month. He has increasingly less headroom and plenty of spending demands to pay for. On the other hand, the market might respond favourably to signs he is willing to take hard decisions on spending – and it would presumably be better to take these decisions now than in the teeth of a full-blown crisis.
In focus: Mixed messages
The ‘good news is really bad news’ phenomenon was evident in earnest during the global financial crisis. Every time there was good news on the economy, it effectively reduced the likelihood of the Federal Reserve cutting US interest rates or launching a new round of quantitative easing. So good news would send markets spiralling lower.
This was back in evidence last week, as spectacular US jobs data sent the stockmarket sliding. The US economy added 162,000 jobs – well above the consensus 55,000 forecast from economists. It was a clear sign of resilience in the US economy, even if recent growth data has been unexciting. In turn, it is increasingly difficult to argue against a rate rise at the next Federal Reserve meeting.
So the Fed now finds itself on the horns of a dilemma. If it leaves rates unchanged at its 15/16 September meeting, markets may conclude it is not taking inflation seriously, which could send yields higher. Or it could raise interest rates, which could also send yields higher – even if a lot appears to be priced in.
“The Fed is facing a difficult balancing act,” says Richard Carter, head of fixed interest research at Quilter Cheviot. “While the jobs market appears resilient enough to ease immediate fears of a material slowdown, it has not been consistently strong enough to remove concerns about the underlying direction of the economy. Against that background, a split in voting at the upcoming Fed meeting would come as little surprise.
“For markets, the message is equally mixed. Investors therefore need to prepare for a range of possible outcomes – and bond markets may once again rethink their assumptions on the timing and direction of the Fed’s next move. This only adds to the uncertainty that has already been building and which appears to be becoming a hallmark of Warsh’s tenure.”
Equity investors have so far largely ignored the volatility in the bond market but that may start to become increasingly difficult. Higher borrowing costs will eat away at corporate margins and could even put some of the AI build-out in doubt, given technology groups have increasingly turned to the bond market to support their spending.
As Rockerfeller International chair Ruchir Sharma points out in the Financial Times: “Going back 300 years, every major bubble ended only when borrowing costs rose significantly for the companies at its core.” The bond market’s troubles now present a significant threat to the sustainability of the stockmarket rally – something that is likely to remain a key theme for the rest of 2026.
