The week that was …
Economic round-up
China and US trade talks
China and the US are to conduct another round of trade negotiations, after swapping threats over tariffs last week. Beijing announced controls around the export of rare earths and the US retaliated with the promise of 100% tariffs. Read more from Yahoo Finance here
UK economic growth
UK GDP growth of 0.1% in August, which was boosted by an increase in manufacturing output, was in line with expectations. The figure for July, however, was revised down from zero to a contraction of -0.1%. Read more from the BBC here
UK unemployment
UK unemployment data showed signs of stabilising this month – edging up 4.8% in the three months to August, from 4.7% in July. This was marginally ahead of expectations. Read more from the Guardian here
US retail sales
US data is still being delayed by the government shutdown but indicative numbers from the Chicago Federal Reserve suggested retail sales were likely to be higher in September. Part of that rise may, however, have come from higher prices in response to trade tariffs. Read more from Reuters here
German confidence slips
German investor confidence improved less than expected in October, as recovery proved slow for Europe’s largest economy. The rise of the ZEW economic institute’s index of economic sentiment to 39.3 points – from 37.3 points in September – was below expectations. Read more from Reuters here
China inflation
The Chinese producer price index fell 2.3% in September, continuing a three-year decline. China’s consumer price index meanwhile fell 0.3% – marginally less than economists had forecast, after a 0.4% decline last month. The index has been in positive territory in only two months this year. Read more from the FT here
Markets round-up
Gilt yields fall
Gilt yields saw their biggest weekly decline since April, as Rachel Reeves’ comments about tax rises and spending cuts in next month’s Budget calmed investors’ nerves. The yield on the UK’s benchmark 10-year debt, which moves inversely to prices, fell 0.14 percentage points last week to 4.53%. Read more in ‘In Focus’ below and from the FT here
Wall Street ends week on a high
Wall Street ended the week higher, after news of a new round of trade negotiations between the US and China. At the same time, quarterly results from regional banks eased concerns about credit risks. Read more from Reuters here
US regional bank shares drop
Shares in US regional banks had wobbled during the week after two lenders disclosed alleged fraud by borrowers. The disclosures by Western Alliance Bank and Zions Bank unsettled markets. Read more from the FT here
Gold prices stumble
Gold prices stumbled at the end of the week, having hit a record high. They came under pressure from a firmer dollar and the announcement of the US/China trade talks. Read more from Reuters here
Investors cool on corporate credit
Larger investors, including BlackRock, Fidelity International and M&G are cutting back their exposure to riskier corporate debt, after a period of strong performance has left spreads over government bonds at record lows. They have moved back into government bonds or the highest-quality corporate debt. Read more from the FT here
“Theories are all very well but does the 'debasement' trade have real-world relevance and, if so, is it likely to continue?
Selected equity and bond markets: 10/10/25 to 17/10/25
| Markets | 10/10/25 (Close) |
17/10/25 (Close) |
Gain/loss |
|---|---|---|---|
| FTSE All-Share | 5092 | 5057 | -0.7% |
| S&P500 | 6552 | 6664 | +1.7% |
| MSCI World | 4238 | 4296 | +1.4% |
| CNBC Magnificent Seven | 386 | 406 | +2.4% |
| US 10-year treasury (yield) | 4.04% | 4.01% | |
| UK 10-year gilt (yield) | 4.64% | 4.54% |
Investment round-up
Evelyn reduces UK weighting
Evelyn Partners has reduced the UK equity exposure in its Core Managed Portfolio Service, redeploying capital into European equities. Relative earnings and margin signals suggest continental Europe was “more appealing than the UK”, the firm explained.
IA consults on property sectors
The Investment Association has launched a consultation on the possible re-categorisation of its UK Direct Property and Property Other sectors. The trade body wants to explore whether separate ‘Direct & Hybrid Property’ and ‘Listed Property’ sectors may be a better option.
Jupiter sees improving flows
Jupiter Asset Management saw a second quarter of net inflows for the three months to 30 September. The group gathered £300m, underpinned by a “marked improvement” in retail and wholesale investor sentiment.
Rathbones closes Investec income MPS
Rathbones is to shut the income model portfolio it inherited from Investec, citing a lack of interest in income portfolios. The income model had less than £10m invested in it, compared with a total of £230m of assets in the broader MPS range.
WisdomTree gains regulatory nod for crypto
ETPs WisdomTree has received FCA approval to make its UK-listed crypto ETPs available to UK retail investors. Both the WisdomTree Physical Bitcoin and Physical Ethereum ETPs, listed on the London Stock Exchange, will now sit on UK-regulated platforms.
… and the week that will be
Earnings reports
Investors will be keenly watching the upcoming third-quarter earnings reports from Netflix and Tesla, which should provide an insight into wider US corporate profitability. This week may also see delayed US inflation data, which could deliver another test for the stockmarket at a time when it has appeared to be on shakier ground. Read more from Reuters here
Political appointments
The coming week will see Japan’s parliament decide on the appointment of Sanae Takaichi, the recently elected president of the ruling Liberal Democratic Party, as the country’s new prime minister. It also sees Ireland pick a new president and the UK Labour party elect its new deputy leader. Read more from the FT here
The week in numbers
UK inflation: Consensus forecasts for the Consumer Price Index (CPI) have UK inflation up 4% year-on-year and 0.2% month-on-month in September – from 3.8% and 0.3% respectively the previous month.
US inflation: Consensus forecasts for the September reading of the US CPI – delayed from 15 October – is that prices have risen 3% year-on-year from 2.9%; and 0.4% month-on-month, which would be in line with August. Core CPI is expected to be 3% year-on-year from 3.1%; and 0.3% month-on-month, in line with August.
Japan inflation: Prices in Japan are expected to rise 2.8% year-on-year over September, up slightly on August’s 2.7%.
UK retail: Consensus forecasts for September are that UK retail sales will rise 0.3% month-on-month.
UK business sentiment: The October flash reading of the UK’s services PMI is expected to rise to 51.1 and the manufacturing equivalent to rise to 46.7.
US economy: Consensus expectations are that the September reading of the Chicago Fed index of overall economic activity and related inflationary pressure will fall to -0.4 from -0.14 the previous month.
US business sentiment: The October flash reading of the US’s manufacturing PMI is expected to rise to 52.1 from 52 and the services equivalent to rise to 54.3 from 54.2.
Eurozone consumer confidence: Consensus expectations are that the October flash reading of the Eurozone consumer confidence index will drop to -15.4 from -14.9 the previous month.
China Q3 growth: Consensus expectations are for China’s GDP growth for the third quarter to be 5.4%, up from 5.2% in the preceding period.
In focus: ‘What’s in debasement?’
The ‘debasement trade’ is the latest Wall Street trend. The phrase, coined by JP Morgan analysts, has come to mean the systematic debasement of fiat currencies through excessive government borrowing and money printing. It is an idea that accounts for the declining US dollar, along with the rise in prices of gold, precious metals, real estate and cryptocurrencies.
The trade has been driven by mounting investor concern that governments lack either the skill or the ambition – or possibly both – to cut spending and raise taxes, preferring to maintain persistently high deficits. At the extremes, it may see governments trying to exert control over central banks – as we have witnessed recently in the US.
Theories are all very well but does the debasement trade have real-world relevance and, if so, is it likely to continue? There is no doubt that governments have played fast and loose with borrowing. France, for example, is currently supporting a debt-to-GDP ratio of around 113%, with the population apparently unwilling to tolerate spending cuts or tax rises.
In Japan, meanwhile, the new head of the ruling LDP party and likely future prime minister has supported an expansionary fiscal policy and is cautious on the monetary-tightening programme of the central bank, the Bank of Japan. This is in spite of Japan’s debt-to-GDP ratio of 230%, and structural debt of ¥1.3 quadrillion (£6.4tn).
In the US, having failed to curb spending, Donald Trump’s administration pushed through tax cuts in the president’s ‘Big Beautiful Bill’, which could add around $3.3tn (£2.46tn) to the country’s structural deficit over the next 10 years, according to the Congressional Budget Office. Even in the UK, the government has been nervous about cutting spending – or breaking its manifesto commitments on tax hikes – to balance the books.
Certainly, there is no arguing with the strength of ‘alternative currency’ options. Gold is up 63% for the year to date , tipping over $4,000 an ounce. Silver is up 82.5%, while platinum is up 81.3%. For its part, bitcoin is up 52.3% over the past 12 months, although it has plateaued more recently .
If politicians are successful in forcing the Fed to cut when they shouldn’t cut, the result is going to be an overheating of the US economy.”
Last month, the Financial Times covered Deutsche Bank analysis showing investors increasingly hedging their exposure to the dollar – pointing out that hedged investments into US bonds and equities had outstripped unhedged holdings for the first time in four years.
Around 80% of the capital flowing into foreign-domiciled US equity ETFs over the previous three months had been on a hedged basis, the report continued, which would help explain how the US stockmarket has continued its strength while the dollar has been weak.
Professional investors do appear to be showing some support for the debasement trade in their positioning – for example, Mike Riddell, manager of the Fidelity Strategic Bond fund, is underweight the dollar and has moved away from US treasuries.
“If politicians are successful in forcing the Fed to cut when they shouldn’t cut, the result is going to be an overheating of the US economy,” he says. “Growth will be too hot. Inflation, which is already picking up, is likely to pick up even more. If the Federal Reserve loses credibility, that’s bad news for the dollar – even in an environment where growth is strong.
“This has been a theme for us. We are running bearish dollar positions. We are worried about treasuries for every reason – there is lots of supply, inflation is picking up, growth is strong and simply for their credibility.”
For his part, Ariel Bezalel, manager of the Jupiter Strategic Bond fund, is willing to back certain parts of the treasury market, but is avoiding long-dated debt. “We still retain a pretty decent position in US five-year bonds because we see a softer jobs market in the near term,” he explains.
“We have become more and more concerned about the fiscal outlook – the lack of sponsorship for the long end of the curve – so we have been gradually migrating away from the long end of bond markets. In the UK, for example, we have been moving from the 30-year to the 10-year. It just allows us to sleep easier at night. We just see very few buyers for long-dated gilts.”
The trajectory of bitcoin does not necessarily suggest it is being used as an alternative option to the dollar.”
As may be expected, there are some arguments against the ‘debasement’ theory and the picture may be more complicated. For a start, if investors are so worried about central bank borrowing, they would be avoiding government bonds as well – or at the very least, demanding ever-higher yields.
And yet, while there has been some ‘indigestion’ in longer-dated bonds, particularly in Japan, for the most part governments have been able to find buyers for their debt. The yield on US government bonds has been relatively stable, meanwhile – and, for the 10 year treasury note, is down from around 4.4% to 4% this year.
Admittedly, yields for French and Japanese debt have been rising but, in both cases, the circumstances are unique – and French 10-year yields have even started to drop as new prime minister Sebastian Lecornu has survived two confidence votes. This does not mean there could not be a big bang coming for bond markets – only that it has not arrived yet.
It is a similar picture on currency. The US dollar has largely stabilised since mid-July, with the DXY index (a measure of the greenback’s strength versus a basket of global currencies) holding a trading range of around 96-99. This is in spite of a variety of potentially currency-weakening moves, such as that recent meddling with Federal Reserve independence.
Other currencies have also shown few signs of structural decline. The yen, for example, had been strengthening versus the dollar in the first half of 2025. It has weakened more recently, but remains stronger than it was at the start of the year. The euro has also been stable since the start of July.
Nor does the trajectory of bitcoin necessarily suggest it is being used as an alternative option to the dollar. The cryptocurrency suffered a ‘flash crash’ in mid-October with crypto derivatives suffering the largest single-day liquidation on record.
More than $19bn was forced out of the market in 24 hours as positions were liquidated and investor unwound their positions. Other cryptocurrencies with weaker liquidity lost up to 80% of their value. Crypto experts have argued the crash was a technical issue and its role in the debasement trade is undimmed – but, at the very least, it suggests the choice is not straightforward.
High government debt – and the reluctance to deal with it – is undeniably influencing markets. That said, that particular trend is well understood by investors and, while it may explain the surge in certain assets, it may not be predictive of the future.
Read more on this from the Guardian here and from Yahoo Finance here
In focus: Gilt flip
It has been a bumper few days for UK gilts. The yield on the 10-year government bond dropped from above 4.75% at the start of last week to below 4.5% by the end. Markets appear to have been soothed by Rachel Reeves’s warm words on taxation and spending ahead of the November Budget.
Gilts have also benefitted from shifts in global bond markets. Rising expectations of an interest rate cut in the US have pushed global bond yields lower. UK gilts have lagged, however, and so this may be a delayed response.
“While gilts are strongly correlated with US treasuries, they have no followed the drift lower in US yields of the past few months,” says Michiel Tukker, senior European rates strategist at ING. “Instead, they remain stubbornly anchored around 4.6%. One key reason is that the Bank of England, unlike the Fed, is not in full cutting mode.”
Gilts continue to be treated differently by the market. As Tukker points out, spreads have most recently risen in line with the widening of French government bond spreads, but did not tighten alongside treasuries and bunds. They were due a catch-up.
It may be the UK has benefitted from a reallocation from more troubled bond markets. France’s prime minister Sebastian Lecournu may have survived two confidence votes but, in order to do so, he had to make significant concessions on the country’s pension reforms. This has ensured French bonds remain under pressure.
Japan’s bond market has also struggled after Sanae Takaichi, a fiscal dove, became the new leader of the ruling LDP party. The UK may look like the least bad of a range of bad options.
A final consideration may have been the UK’s latest employment data, which showed higher unemployment and stable wage growth. It was the lowest wage inflation since December 2021, and suggests the Bank of England may have more scope to cut rates in the near term.
Nevertheless, there have been no immediate changes to the UK’s difficult financial situation and Tukker suggests there may be more volatility ahead of the budget. He does, however, see the potential for further rallies in the gilt market once the budget uncertainty is settled, adding: “The volatility in gilts should ease, which would then help the risk premium compress.”
Read more on this from the FT here
