The week that was …
Economic round-up
US shutdown and jobs data
The closely-watched US non-farm payrolls data was not released as planned on Friday as a result of the continued shutdown of the US government. The shutdown has led to the temporary closure of the Bureau of Labor Statistics, which publishes the figures. Read more from the Times here and in ‘In focus’ below
Tariffs raise US consumer prices
The costs of tariffs are starting to drive higher prices for US consumer goods, even though overall inflation remains moderate. Official data and statements from companies are pointing to accelerating price rises for a range of trade-dependent products as companies have run through inventories and are now looking to push the burden of tariffs onto consumers. Read more from the FT here
Eurozone inflation
Eurozone inflation rose to 2.2% in September. Although in line with expectations, this was the first time it has gone above the European Central Bank’s 2% target since April. Even so, it is unlikely to change the direction of interest rates, which are due to remain on hold when the ECB committee meets later this month. Read more from the FT here
German inflation
German inflation continues to creep up, coming in marginally ahead of expectations for September. Headline inflation increased to 2.4% year-on-year over the month, up from 2.2% in August. Read more from ING here
US business confidence
The ISM US manufacturing purchasing managers index (PMI) rose to 49.1 in September 2025 – up from 48.7 the preceding month and slightly ahead of market expectations. Despite its strength, the reading marked the seventh consecutive month of contraction. Read more from Trading Economics here
US services sentiment
The US’s ISM services PMI fell to 50 in September 2025, down from 52 in August. This was significantly below consensus forecasts of 51.7 and suggests the US services sector may be stalling. Employment was also in contraction territory – attributed to a combination of delayed hiring efforts and difficulty finding qualified staff. Read more from Trading Economics here
China business confidence
China’s official manufacturing PMI was 49.8 in September – up from 49.4 the previous month, slightly stronger than forecasts and a six-month high. Within the data, the production number increased to 51.9 – another six-month high – and new orders also edged up. Read more from ING here
No more taxes, urges Tesco boss
Ken Murphy, chief executive of Tesco, has warned Rachel Reeves that “enough is enough” on tax rises. He said his “one ask” for the November budget was: “Don’t make it harder for the industry to deliver great value for customers.” Read more from the Times here
Markets round-up
London IPO revival
London’s stagnant capital markets received a boost from two high-profile flotations – from Italian food group Princes and LED mask-maker Beauty Tech – prompting hopes of a turnaround for IPOs in the UK capital. Read more from the Times here
Japanese shares push higher
Japanese shares keep hitting new highs, even as the country’s bonds and currency struggle – most recently in response to the election on Saturday of Sanae Takaichi. Widely seen as having the most expansionist fiscal and monetary agenda among the five candidates to lead the ruling Liberal Democratic Party, Takaichi is now on course to become the country’s prime minister. Read more from Reuters here
UK new-car market bounce
Britain’s new-car market logged its best September in five years, giving a boost to the country’s automotive sector as it races to meet government targets for electric-vehicle adoption and quelling concerns over weak private-buyer demand. Read more from Reuters here
US multinationals outpace domestic firms
Multinationals and exporters are outshining domestically-focused companies as the weak dollar becomes a dividing line for the US stockmarket. A Goldman Sachs index of the 50 blue-chip US companies with the highest share of foreign sales exposure has jumped 21% this year, outperforming the S&P 500 index. Read more from the FT here
Global dividends hit new highs
Global dividends reached new highs of $114tn (£84.84tn) in the first half of 2025, although the UK lagged other major markets. Overall, dividends rose 7.7% year-on-year, according to Capital Group data, with Japan leading the way. Read more from Investment Week here
“While it would be premature to call an end to the Asian rally, it may well have a different look and feel from here onwards.
Selected equity and bond markets: 26/09/25 to 03/10/25
| Markets | 26/09/25 (Close) |
03/10/25 (Close) |
Gain/loss |
|---|---|---|---|
| FTSE All-Share | 5021 | 5133 | +2.2% |
| S&P500 | 6644 | 6716 | +1.1% |
| MSCI World | 4276 | 4337 | +1.4% |
| CNBC Magnificent Seven | 407 | 407 | +0.1% |
| US 10-year treasury (yield) | 4.18% | 4.12% | |
| UK 10-year gilt (yield) | 4.76% | 4.69% |
Investment round-up
Fund outflows accelerate
UK retail investors withdrew £1.8bn from funds in August, according to figures from the Investment Association. UK equities were particularly weak, seeing £841m of redemptions. Japanese equities also saw their largest outflows since May 2022.
Saba in fresh attack on BG trust
The board of Baillie Gifford’s US Growth Trust has faced a new challenge from activist hedge fund Saba Capital. At the company’s recent AGM, six resolutions to re-elect the existing board and approve their remuneration policy only passed by a slim margin.
Lloyds and Schroders abandon JV
Lloyds Banking Group and Schroders will abandon their wealth management joint venture, after the ‘mass affluent’ offering missed targets. Lloyds will now take control of Schroders’ 49.9% in Schroders Personal Wealth.
Royal London launches healthcare Reit
Royal London has launched a £1bn real estate investment trust targeting healthcare assets. The Reit will invest predominantly in care homes, tapping into the growing needs of the UK’s ageing population. The group said the market was undersupplied while facing increasing demand.
Regulator’s warning against narrow costs focus
The FCA’s head of department for consumer investments Kate Tuckley told the2025 CISI Financial Planning Conference that fair value under Consumer Duty cannot be reduced to simply charging the lowest fees. Too many firms risk misinterpreting the duty by focusing narrowly on costs, rather than their wider service proposition, she added.
Nutmeg brand disappears
JP Morgan Chase is to ditch the ‘Nutmeg’ brand from November 2025, when it will rebrand to JP Morgan Personal Investing. This will be offered as both a standalone service and as part of the Chase UK app.
AJ Bell launches MPS comparison tool
AJ Bell has launched a suite of planning tools allowing comparisons of model portfolio services. The service has been built in partnership with Mabel Insights on AJ Bell’s Investcentre platform and will be offered for free.
… and the week that will be
Hints from Federal Reserve
The US government shutdown is making the Federal Reserve’s decision-making even harder. While the shutdown may slow growth at the margins, it also deprives the Fed of key data with which to make decisions. The US central bank already faces an unusual environment, with around 4% annualised growth but weak jobs data, which may be explained by the artificial intelligence boom. Read more from Reuters here
US consumer’s health
A range of earnings releases are due this week from major US businesses, including Amazon, which may give some insight into the health of the US consumer. Investors may also be able to judge better whether companies have started to pass on tariff increases to customers and the extent to which that is influencing demand. Read more from Investopedia here
The week in numbers
FOMC minutes: Due to be released on Wednesday, the Federal Open Market Committee’s minutes could offer greater insight into the US central bank’s deliberations on how many times it will cut interest rates again this year
Powell speech: Market participants will be keenly analysing the speech US Federal Reserve chairman Jerome Powell is set to give on Thursday for similar reasons.
US consumer sentiment: Consensus expectations are that the October reading of the Michigan confidence index of US consumer sentiment will fall to 54 from 55.1.
In focus: Eastern premise
Asian markets look to have hit something of a sweet spot, with China rallying and global investors in search of an alternative to the Magnificent Seven rediscovering the region’s technology names. Now, as valuations have jumped higher, fund managers are looking further afield in search of growth.
The continent actually boasts both the top and bottom-performing major markets for the year to date – respectively, China and India. Nevertheless, the aggregate performance of Asian markets has been strong, with the average Asia Pacific excluding Japan fund up 16.2% over the year to date. For its part, the MSCI Asia excluding Japan index is around 9% ahead of the broader MSCI All Countries World index in 2025.
“The market has done pretty well and is now quite frothy,” says Fiona Yang, manager on the Invesco Asia Dragon trust, says. “China is recovering from a downcycle and share price performance has been very strong. Korea is another exciting place, as the ‘value up’ initiative has taken effect. This replicates the corporate governance initiatives in Japan, and gives incentives to buy into the stockmarket. Singapore, although small in the index, has also done well.”
Asia has also been a natural hunting ground for investors looking for technology opportunities outside the US as it has a wealth of names in the semiconductor supply chain – not to mention Chinese AI giants Alibaba and TenCent. Yang says this explains the recent surge in Taiwan, adding: “Valuations have come up quite meaningfully because companies have a lot of exposure to the AI thematic and were trading at quite a significant discount. They have done well since the emergence of AI.”
She goes on to note, however, that valuations are now slightly above their historical average – so has the window of opportunity closed? These areas still have further to run, Yang believes, pointing out TSMC is still the largest holding in the Asia Dragon portfolio. “AI chips wouldn’t exist without TSMC,” she explains. “It is a big enabler of AI growth – not just in Asia but across the world.”
Alibaba and TenCent are still exciting, Yang continues – for example, Alibaba is committing $380bn (£283bn) in capital expenditure towards AI and cloud initiatives alone. TenCent’s strategy is slightly different, focusing more on the use of AI to create better gaming experiences, and helping in other areas. “All China stocks were undervalued,” she adds. “Now, with the emergence of DeepSeek, it is clear China isn’t lagging behind that much in AI adoption.”
China investors have a notorious casino mentality – they either get overly pessimistic or overly optimistic.”
There are also opportunities in memory – and Qian Zhang, an investment specialist at Baillie Gifford, which manages Pacific Horizon Investment Trust, identifies this as an important part of the portfolio. “Samsung Electronics and SK Hynix are two out of the three companies in the world that can make high bandwidth memory [HBM] chips at scale,” she says. “With all the news we hear about huge data-centre investment, to power better, faster and smarter computing and referencing, HBM chips are essential.”
Robert Marshall-Lee, chief investment officer of Cusana Capital, agrees there are reasons to be cautiously optimistic on China as well. “Over recent months, there has been some market repair in China,” he says. “The government realises it needs private enterprises to flourish – particularly as it emerges from a severe property market correction.
“This is leading to a significant excess supply – particularly of basic materials and manufacturing, but these are areas we are avoiding. Yet, at the same time, you have high-quality compounding businesses being able to function again. The currency is also strengthening against the weaker US dollar, which is helping.”
Marshall-Lee is not expecting a huge, macro boom-type ‘off-to-the-races’ scenario, but says there is certainly a repair story unfolding. Investors who have shied away from China are rethinking their strategies and have been coming in at the margin, which in turn has been driving up share prices.
“China investors have a notorious casino mentality – they either get overly pessimistic or overly optimistic,” he says. “We are not at the ‘fully overoptimistic’ stage yet, but there are some compelling long-term growth stories emerging. We currently have around a quarter of our portfolio invested in China – but our holdings look very little like the index.”
That said, both China and technology-focused companies have run up a long way. Yang suggests that, while this does not come close to a bull market, valuations are now much more in line with historic averages than they have been of late and the easy gains may have been made. Fund managers are looking for other potential sources of growth.
To that end, Yang is focusing on some of the gaming companies, which enjoy support from developments in AI, but have not seen the same strength. The industry moat is strong, she adds, with games requiring a lot of upfront investment, which mitigates against competitive threats.
She also likes a number of Indonesian companies. While the market has been held back by various macroeconomic headwinds, including some misguided government initiatives, she believes the economic picture is starting to improve and there are lots of well-priced individual stock opportunities.
A 20% tariff by the US is unlikely to derail Vietnam’s trajectory toward becoming a strategic global production base.”
For her part, Zhang highlights Pacific Horizon’s large allocation to Vietnam, which has just reported 8%-plus annualised GDP growth. “We believe the country has all the ingredients to become one of Asia’s growth leaders and merits a long-term allocation,” she says.
“While tariffs grab headlines, it is the developments within Vietnam – from its structural reforms to a shifting consumer landscape – that command our attention. A bold pro-growth policy shift under new leadership is reigniting domestic economic momentum. A 20% tariff by the US is unlikely to derail Vietnam’s trajectory toward becoming a strategic global production base.”
Investors should also be aware of a switch in the type of funds that are doing well. Until the start of this year, it had been a very strong period for Asian income funds and those with a value style as they had largely swerved the problems in China – even if they had missed some of the growth in the Indian market.
Guinness Asian Equity Income, Jupiter Asian Income and L&G Asia Pacific Equity Income, for example, are all among the top 10 performers over five years. Since the start of this year, though, it has been a different type of Asia portfolio that has led the way – with the likes of Baillie Gifford Pacific, Fidelity Emerging Asia, Man Asia and Veritas Asian standing out. These are funds with more exposure to China and are more ‘growth’ in feel.
While it would be premature to call an end to the Asian rally, it may well have a different look and feel from here onwards, as investors look beyond China and AI-related companies towards other growth areas.
Read more on this from Bloomberg here and from Morningstar here
In focus: Signal lost
How much should the US government shutdown matter to markets? On Friday, US senators failed – for a fourth time – to pass spending proposals that would have reopened the federal government. So far, as it now enters its second week, the impasse has had little impact on financial markets but, with payroll data releases deferred, could this now change?
The stumbling block is healthcare, with Democrats wanting to ensure existing cover is not cut for the poorest citizens, and the Medicaid health programme remains in place. For their part, Republicans are trying to build a narrative that the Democrats want to provide free healthcare to undocumented immigrants. There is little sign of any progress in negotiations.
Friday saw the release of closely-watched US non-farm payrolls data postponed as part of the shutdown – a development President Donald Trump may have welcomed, given the numbers were widely expected to show further weakening in the US labour market. Could this be the catalyst that finally gets markets to take notice? After all, without key data, how can investors know which way the economy is headed?
Luke Bartholomew, deputy chief economist, at Aberdeen points out that investors have grown relatively used to shutdowns over the last 15 years. “There is a well-established playbook on this now, especially given that this shutdown is not bound up with debt ceiling issues,” he adds. “The longer the shutdown continues the more the economic drag will build – perhaps around 0.15 percent points off growth a week.”
Bartholomew concedes, however, that slowing the release of crucial labour-market data could have an impact over time. “The Fed is still very likely to cut again in October but, given the importance of the labour market in its thinking at the moment and the various other political pressures the Fed is under, this lack of data clarity certainly won’t make its job any easier,” he observes.
Daniela Sabin Hathorn, senior market analyst at Capital.com, agrees the lack of data deprives markets and the Fed of timely signals, noting this is important “just as positioning is skewed toward a dovish outcome on the back of a softening labour market”.
“Headlines about potential permanent layoffs linked to the shutdown add a low-probability, high-impact tail risk that could nudge unemployment higher and trigger a mini growth shock, keeping risk appetite subdued at the margin,” she explains.
In essence, the shutdown could start to have real-world consequences the longer it goes on. The lack of key data points makes Federal Reserve decision-making yet more difficult – if such a thing were possible – and, without data to back it up, the US central bank is likely to err on the side of caution rather than cut rates. This would destabilise markets that are keenly anticipating a cut.
Read more on this from CNN here and from J.P. Morgan here
