The week that was …
Economic round-up
UK economy
UK GDP for the three months to the end of June beat expectations, rising 0.3%, although this was behind the first-quarter rise of 0.7%. The UK economy grew 0.4% in June itself, while the ONS revised up its initial estimate for April’s contraction from -0.3% to -0.1%. Read more in ‘In focus’ below and from the Guardian here
US/China trade truce
The US and China have deferred further rises in tariffs for another 90 days. US president Donald Trump signed an executive order to keep the pause in place until 10 November, while Beijing also announced an extension. This keeps US levies on Chinese imports at 30% and China’s levy on US goods at 10%. Read more from the BBC here
UK employment
The UK jobs market showed signs of slowing in June, though average wage growth remained buoyant at 5%. There was a drop of around 8,000 people on payrolls over the month, though unemployment data was unchanged month-on-month. Read more from the BBC here
US inflation
In July, the US Consumer Price Index (CPI) increased 0.2% month-on-month and 2.7% year-on-year, in line with market expectations. Excluding food and energy, the core CPI increased 0.3% for the month and 3.1% from a year ago, compared with consensus forecasts of 0.3% and 3%. Read more from CNBC here
US consumer sentiment
US consumer sentiment weakened in August while inflation expectations rose. The University of Michigan’s Consumer Sentiment index fell to 58.6 this month from a final reading of 61.7 in July and behind analysts’ expectations of 62. Read more from Reuters here
Japan economy
Japan’s economy expanded 0.3% in the second quarter, ahead of expectations, as the country showed resilience in exports. This rise was up from the 0.1% expansion seen in the first quarter. Annualised growth came in at 1% – more than double the consensus 0.4% forecast. Read more from CNBC here
US retail sales
July saw retail sales in the US rise 0.5% month-on-month, supported by strong demand for cars. Economists warned, however, that a softening employment market could curb consumer spending in the third quarter. Read more from Reuters here
Markets round-up
Rate-cut hopes buoy markets
Wall Street’s main stock indexes recorded a second week of gains, on hopes the Fed could cut interest rates in September. The central bank last lowered borrowing costs in December and has been waiting to judge the impact of the new tariffs regime on inflation. Read more from Reuters here
Weight-loss drug giants struggle
The twin behemoths of weight loss drugs – Eli Lilly in the US and the Danish Novo Nordisk – have seen their share prices struggle, shedding more than $250bn (£185bn) in value over the year to date. The companies have been hit by Donald Trump’s tariff regime and price-cut threats. Read more from the FT here
US treasuries ‘subdued’
The US treasury market has been surprisingly subdued over the summer, Reuters columnist Mike Dolan has noted, adding: “For all the outsized fears about the US fiscal situation, climbing debt-loads, tariff-related inflation and Federal Reserve independence, the bond market’s ‘fear index’ is at its lowest point in three years.” Read more from Reuters here
EM firms capitalise on lower debt costs
Banks and companies in emerging markets (excluding China) are issuing bonds at the fastest rate since 2021, as spreads over US treasuries fall to historic lows. EM borrowers raised more than $250bn in bonds between January and July. Read more from the FT here
US credit spreads hit new lows
US credit spreads have hit their lowest level since 1998, after a rally in global credit markets. Investors are warning that the market is underestimating the risks in the global economy. Read more from the FT here
“China looks to have reasserted itself as more important than India in driving overall sentiment towards the world’s emerging markets.
Selected equity and bond markets: 08/08/25 to 15/08/25
| Markets | 08/08/25 (Close) |
15/08/25 (Close) |
Gain/loss |
|---|---|---|---|
| FTSE All-Share | 4939 | 4954 | +0.3% |
| S&P500 | 6389 | 6450 | +0.9% |
| MSCI World | 4125 | 4175 | +1.2% |
| CNBC Magnificent Seven | 376 | 379 | +5.33% |
| US 10-year treasury (yield) | 4.29% | 4.32% | |
| UK 10-year gilt (yield) | 4.60% | 4.7% |
Investment round-up
Evelyn Partners owners target sale
The private equity backers of Evelyn Partners have reignited efforts to sell the business. Evelyn’s owners Permira and Warburg Pincus are exploring the possibility of selling the company, with NatWest and Royal Bank of Canada approached as potential buyers.
Wiggins to lead retail investment campaign
Sasha Wiggins, the chief executive of private bank and wealth management at Barclays, has been appointed chair of the UK’s retail investment campaign. The initiative aims to reshape the UK’s investment culture and encourage more people to investing in the stockmarket.
Maven shareholders vote to keep board
Shareholders have voted against proposals to replace the board of Maven Renovar VCT. Motions from a group of shareholders led by the former investment adviser to the trust were opposed by a margin of more than 8.6m shares, with votes cast by around 1,500 shareholders.
IFA consolidator launches
IFA consolidator Absolute Financial Group has launched, backed by private equity firm Inflexion and Tatton Management. The business will be led by chief executive David Carter, formerly the head of CMS Wealth.
FCA relaxes rules on crypto ETNs
The Financial Conduct Authority is expanding access to crypto exchange-traded notes (ETNs) to retail investors, lifting a four-year ban. Individual consumers will be able to invest in the notes from October, if they are traded on a UK-based investment exchange approved by the FCA.
… and the week that will be
Jackson Hole
The world’s central bankers will gather at Jackson Hole this week, with the fate of US Federal Reserve chair Jerome Powell in the spotlight. He has been under attack from president Donald Trump for his reluctance to cut rates, though recent data has brought a more dovish stance from the central bank. The climax will be on Friday, when Powell is scheduled to speak. Read more from the Times here
Ukraine talks
A ceasefire in Ukraine appears unlikely, with Russia intransigent, the US ill-prepared and Ukraine unwilling to cede territory. Nevertheless, talks are ongoing and any signs there might be an end to the fighting would be welcomed by markets. Read more from Reuters here
The week in numbers
UK inflation: Consensus forecasts have the UK’s Consumer Price Index for July rising to 4% from 3.6% year-on-year and slowing to 0.2% versus 0.3% month-on-month.
UK retail sales: Consensus expectations are for retail sales in the UK to rise by 0.3%, versus 0.9% month-on-month; and by 1.8%, versus 1.7% year-on-year.
UK consumer confidence: Consensus forecasts for the August reading of the GfK Consumer Confidence Barometer have it remaining unchanged at -19.
UK business sentiment: The preliminary reading of the S&P Global manufacturing PMI for August is expected to rise to 48.6 versus July’s 48, while the services equivalent is expected to slide to 51.7 versus 51.8 previously.
Euro area consumer confidence: Consensus expectations for the preliminary August reading are for an uptick from -14.7 to -14.4.
Euro area business sentiment: The preliminary reading of the Euro Area HCOB manufacturing PMI for August is forecast to edge up to 50 versus July’s 49.8, while the services equivalent is forecast to rise to 51.5 versus 51 previously.
US business sentiment: The preliminary reading of the S&P Global manufacturing PMI for August is expected to slow to 49.7 versus July’s 49.8, while the services equivalent is expected to slide to 53 versus 55.7 previously.
US rates: Minutes from the latest meeting of the Federal Open Market Committee are released this week.
In focus: EMpowered
The resilience of China and the weakness of the US dollar are underpinning professional investors’ renewed interest in emerging markets, according to the latest Bank of America Fund Manager Survey. With the proportion of fund managers overweight emerging market equities hitting its highest level in two years, could this finally prove a turning point for an asset class that has lagged for more than a decade?
A weak dollar does tend to create a tailwind for emerging market stocks, self-evidently reducing the cost of dollar-denominated debt, while allowing some emerging market central banks to lower interest rates. This ought to have a knock-on effect for both economic growth and sentiment.
After a brief revival in late July, the greenback has resumed its downward trajectory. The DXY index, which measures the US dollar against a basket of major currencies is down around 10% over the year to date. The Bank of America survey indicates fund managers expect further declines, with the dollar now the largest underweight position among respondents.
Then there is the revival of China. Last week saw reciprocal tariffs between it and the US deferred by another three months – yet markets had shown themselves remarkably unbothered by the prospect of tariffs anyway. The Shanghai Composite index is up 10.3% over the year to date, and 28.4% over the past 12 months. For its part, the Hong Kong-focused Hang Seng has been even stronger – up 26% for the year to date and 45% over the year.
There are a number of reasons why investors are re-embracing the world’s second-largest economy – not least, that it has shown itself to be extremely resilient in the face of threats from the US. The Chinese economy expanded 5.2%, year on year, in the second quarter. Admittedly, this includes some front-loading to avoid the tariffs but more recent trade figures have also been good, with industrial output running at 6.8% in June.
The country’s stockmarkets have also been a beneficiary of growing questions around the dominance of the US’s artificial intelligence (AI) giants. In its latest investment report, Ruffer Investment Company notes: “The arrival of DeepSeek has rightly placed question marks over whether America will be the undisputed winner from the AI revolution and whether only the US market provides profitable exposure to the theme.
A healthy dose of uncertainty has been injected and the narrative undermined as China’s growing tech prowess becomes clearer.”
“Can companies like Nvidia maintain their competitive moats, which allowed such high margins and returns on capital? A healthy dose of uncertainty has been injected and the narrative undermined as China’s growing tech prowess becomes clearer.”
Emerging markets more generally have meanwhile benefited from a broader diversification trade by investors. Although US markets have revived in recent weeks, dollar weakness creates a headwind for international investors, who have been looking around for alternative sources of growth in the global economy. The UK, Europe and emerging markets have all been beneficiaries.
Valuation has also been a factor. Emerging markets appear to offer strong growth for the price investors are being asked to pay. This is clear from both aggregate valuations – the MSCI Emerging Markets index has an average forward price/earnings ratio of 13x versus 20x for the MSCI World – and from the valuations of comparable stocks. According to Macrotrends data, for example, as of 15 August, TSMC was trading at just 28x compared with 58x for Nvidia, yet the Taiwanese semiconductor giant is arguably the more important company.
Can it continue? Certainly, there is still an economic growth argument for emerging markets. “While developed markets are grappling with austerity and cost-cutting, many emerging economies such as China are moving in the opposite direction, stimulating demand and investing in growth,” says Chris Tennant, portfolio manager of Fidelity Emerging Markets. “The combination of attractive valuations and policy support in key markets creates a favourable backdrop.”
The International Monetary Fund forecasts growth in emerging market economies of 4.1% in 2025 and 4.0% in 2026 – compared with just 1.5% and 1.6%, respectively, for the developed world. For emerging and developing Asia, which dominate the emerging markets indices, the growth is even higher, at 5.1% and 4.7% respectively.
Emerging markets are clearly tapped into some key global trends. The semiconductor supply chain is largely located in Asia and, as AI gathers pace, this will become ever more important. Emerging markets are also greater beneficiaries of the near-shoring trend – particularly Mexico, as well as Vietnam and other southeast Asian economies.
China has doubled down on building a more self-sufficient economy since Trump’s first term, with its firm negotiating stance helping secure favourable terms while undermining US credibility.”
The elephant in the room – no weak pun intended – is India. The country’s stockmarket has been the leading light in emerging markets over the past few years, but the BSE Sensex index has dropped over the past three months. There have been concerns over India’s weakening consumer picture, lower government spending and high valuations. Against expectations, Donald Trump has also imposed high tariffs on Indian exports to the US in an attempt to prevent the government using Russian oil.
This demonstrates another key risk for emerging markets. “The global trade environment remains unpredictable, with potential policy shifts that could impact exporters,” says Tennant. “Geopolitical tensions continue to drive volatility and any significant global economic contraction would likely pressure emerging market equities.” Key emerging economies Brazil, India and Mexico have all shown themselves vulnerable to the unpredictability of the Trump tariff regime.
Nevertheless, China has clear leverage in the current trade talks. The US cannot do without refined rare earths, in which China has a near-monopoly position. It has also strategically repositioned its economy to be more self-reliant.
“China has doubled down on building a more self-sufficient economy since Trump’s first term, with its firm negotiating stance helping secure favourable terms while undermining US credibility,” argues Jacqueline Broers, co-fund manager on the Utilico Emerging Markets Trust. “During our recent talks with Chinese companies at a conference in Shanghai, it was made evident that Beijing is rebalancing diplomatic ties under ‘Trump 2.0’.”
China looks to have reasserted itself as more important than India in driving overall sentiment towards the world’s emerging markets. Either way, as their developed counterparts flail, investors would appear to be starting to appreciate the charms of the asset class once again.
Read more on this from Allianz Global Investors here and from the FT here
In focus: Wanted – animal spirits
UK economic growth came in ahead of economists’ expectations for the second quarter in a row, reversing – albeit only slightly – a narrative of unrelenting gloom for an economy beset by black holes, higher taxes and poor productivity. Chancellor Rachel Reeves still faces some tricky decisions in the run-up to her Budget this autumn.
UK GDP rose 0.4% month-on-month in June, reversing a 0.1% fall in May. The 0.3% growth over the quarter was ahead of market expectations of a rise of 0.1%. All areas of the economy were growing, with services up 0.3% month-on-month, construction up 0.3% and production up 0.7%. There was also a chunky revision to the April figures. All in all, it puts the annualised growth rate for the UK economy at 1.26%.
Nicholas Hyett, investment manager at Wealth Club, said: “After the tariff-induced volatility earlier in the year, the production sector has bounced back, helped by increased defence spending in certain sectors, while the motor industry enjoyed a month of strong sales amid growing demand for electric vehicles.” He believes the trade deals should have helped, providing some certainty for exporters.
For Danni Hewson, head of financial analysis at AJ Bell, the construction figures provide “a glimmer of hope that at least some of the government’s plans are beginning to bear fruit”. The strength of the consumer sector was also noteworthy, she says, adding: “This was helped along by balmy temperatures, which tempted people to visit beer gardens and ice cream parlours.”
Nevertheless, growth remains unspectacular and, while it may not give Reeves any new problems, it does not really solve her old ones. She faces a delicate balancing act in the upcoming budget: raise taxes and she threatens to cut off this nascent growth; raise borrowing and she threatens a bond market revolt; cut spending and she risks the ire of her backbenchers.
There are factors that could improve the situation. The US trade deals create some security for UK businesses that could gradually show through in economic growth. Continued high wage growth should support consumer spending. Equally, the impact of falling interest rates – and, particularly, lower mortgage costs – has yet to be felt significantly in the wider economy.
The UK needs to rediscover its mojo, however. The discernible lack of confidence among consumers and businesses is a problem for growth. The UK needs the return of some animal spirits to find its feet again.
