The week that was …
Economic round-up
UK inflation
UK inflation, as measured by the Consumer Price Index, rose in line with expectations in July, hitting 3.8% – its highest level since January 2024. The Bank of England forecasts it will reach a peak of 4% in September, before falling back towards the bank’s 2% target. The July increase was mainly driven by soaring air fares – which jumped by 30.2%. Read more from the BBC here
UK business outlook
In better news for the chancellor, UK business activity rose to a 12-month high while public borrowing came in below official forecasts. The S&P Global UK Composite Purchasing Managers’ Index (PMI) for August picked up to 53, the fourth consecutive monthly reading above 50. Read more from the FT here
UK consumer confidence
UK consumer confidence picked up after the latest interest rate cut by the Bank of England although worries about rising inflation and potential tax increases continue to weigh on sentiment. The August reading of market research firm GfK’s consumer confidence index rose to its highest level since December at -17 – up from -19 in July. Read more from Reuters here
US business sentiment
US business activity grew at its fastest rate this year in August. Growth was seen across both manufacturing and service sectors while hiring also picked up. Business confidence also improved but remained much weaker than at the start of the year. Read more from S&P here
Euro area business outlook
New orders picked up in the Eurozone during August, ending a period of decline since June 2024. Business activity rose to the greatest extent in 15 months while companies increased their staffing levels for the sixth consecutive month. Inflationary pressures, however, also strengthened. Read more from S&P here
Markets round-up
‘Footsie’ powers ahead
The FTSE 100 index hit new all-time highs, despite signs of higher UK inflation and weaker sentiment towards US technology stocks. The FTSE 250 also moved ahead, extending a strong period for UK stockmarkets. Read more from the Independent here
Equity inflows slow
Global equity fund inflows dropped sharply in the week to 20 August, following a sell-off in technology stocks and worries over US Federal Reserve chair Jerome Powell’s upcoming speech at the annual Jackson Hole symposium. Investors bought $2.27bn (£1.68bn) of global equity funds during the week, compared with $19.29bn net purchase the week before. Read more from Reuters here
Interest rate cut speculation
Rate-sensitive stocks rallied on Friday after Fed chair Jerome Powell hinted the US central bank could cut rates as early as September, citing a “change in the balance of risks”. Traders now see a 90% chance of a rate cut next month. Read more from Reuters here
The ‘forgotten 493’
Investors are warming to the ‘forgotten 493’ businesses of the S&P 500 that do not make up the so-called ‘Magnificent Seven’, after a sell-off in AI-related stocks reminded investors of the risks of outsized exposure to the US’s technology giants. While the earnings outlook of these companies remains relatively strong, investors have grown increasingly concerned over valuations. Read more from the FT here
“In common with global equities, fixed income markets have seen a significant relief rally in the wake of the US tariff announcements and may now have gone too far.
Selected equity and bond markets: 15/08/25 to 22/08/25
| Markets | 15/08/25 (Close) |
22/08/25 (Close) |
Gain/loss |
|---|---|---|---|
| FTSE All-Share | 4954 | 5049 | +1.9% |
| S&P500 | 6450 | 6467 | +0.3% |
| MSCI World | 4175 | 4193 | +0.4% |
| CNBC Magnificent Seven | 379 | 376 | -0.9% |
| US 10-year treasury (yield) | 4.32% | 4.26% | |
| UK 10-year gilt (yield) | 4.7% | 4.7% |
Investment round-up
Trio of managers leave Stewart Investors
David Gait, Sashi Reddy and Sujaya Desai have left Stewart Investors. The team had managed funds with almost £10bn in assets, including the flagship £5.5bn Stewart Investors Asia Pacific Leaders fund. Co-manager Douglas Ledingham will remain on the trust and will be joined by Jack Nelson.
Benchmark’s cash management tool
Benchmark Capital has partnered with Insignis to offer a range of cash management solutions for advisers. Benchmark advisers will be able to support clients with a range of savings options when managing clients’ cash, while Insignis will handle the ‘know your client’ and anti-money laundering requirements.
JOHCM adds to EM team
JO Hambro Capital Management (JOHCM) has appointed Roshni Bolton as a fund manager and Jack Gater as an analyst on its emerging markets team. The two will join senior fund managers Ada Chan, James Syme and Paul Wimborne.
Aberdeen sells financial planning business
Aberdeen has sold its financial planning business to Ascot Lloyd as part of a broader streamlining of its operations. The deal will see 6,300 clients move to Ascot Lloyd, with the national advice business adding £3.6bn of assets under advice.
Advised platforms see AUM growth
Positive markets aided a 4.36% increase in assets under management for advised platforms in the second quarter of 2025, according to research from the Lang Cat. The quarter also saw the best net sales for platforms in two years.
Aegon platform sees outflows
Aegon UK’s adviser platform, however, saw £1.54bn in net outflows in the first half of 2025, which it attributed to ongoing consolidation and vertical integration in non-target adviser segments. The group said it aimed to return the platform to growth by 2028 by “improving the platform experience” and focusing on its 500 target adviser firms.
Tritax holds price on Warehouse bid
Tritax Big Box REIT has said it will not increase its offer for Warehouse REIT, following a higher bid from Blackstone, but maintained its offer of a combination of the two companies remained a “compelling proposition for both sets of shareholders”.
… and the week that will be
Nvidia earnings
Recent weakness in US tech stocks has provided an uncertain backdrop for Nvidia’s quarterly results, which are due on Wednesday. The earnings will provide a crucial test for the AI trade and Matthew Maley, chief market strategist at Miller Tabak, noted investors were more “on edge” ahead of the results. Read more from Reuters here
US inflation
The US PCE index, the Federal Reserve’s preferred measure for inflation, is released on Friday and consensus expectations are for it to jump higher – especially after July’s surprise CPI reading of 2.7%. In spite of his recent Jackson Hole speech, a higher reading could be a worry for Fed chair Jerome Powell ahead of the September decision. Read more from the FT here
The week in numbers
US economic growth: Consensus expectations are for the second-quarter estimate of US quarter-on-quarter GDP growth to be revised up to 3.1% from 3%.
US consumer confidence: Consensus forecasts have the August reading of the US consumer confidence measure falling from 97.2 to 96.
US personal consumption: Consensus expectations are that the US personal consumption expenditures (PCE) price index reading for July will rise 2.6%, year on year – in line with the previous month. Core PCE is meanwhile expected to rise 0.2%, month on month – down on the previous month’s 0.3%.
Company news: Half-year/quarterly results expected from Chesnara, Nvidia and Prudential
In focus: Spread thin
Fixed income has become something of a minefield. Credit spreads have hit their lowest levels since 1998, while emerging market debt spreads have also narrowed to multi-decade lows. And, if that were not enough, there has also been wobbly demand for longer-dated funds, which managers fear may be structural rather than cyclical. Truly it is a precarious moment to be running a strategic bond fund.
While investors fret over the outlook for global equities, potential issues within the fixed income markets have prompted less concern. ‘All-in’ yields remain relatively high, which has masked some of the problems and reduced the risk of overall capital loss; inflation concerns have not materialised – yet; and the trajectory of interest rates is still lower. It does appear, however, that markets are paying scant attention to the potential risks.
The Financial Times, for example, cites Ice BofA data, which shows the cost of borrowing for investment-grade companies in US and Eurozone credit markets is respectively 0.75 and 0.76 percentage points above benchmark government bond yields – the lowest levels since 1998 and 2018 respectively. Admittedly, default rates appear low relative to history – but not low enough to justify such diminished spreads.
Equally, there are plenty of worrying factors for companies – for example, as Tim Winstone, head of investment grade credit at Janus Henderson, notes: “Corporate fundamentals are under scrutiny, especially as companies increase spending driven by artificial intelligence (AI).” The US tariff regime, meanwhile, may have turned out better than anticipated in the immediate aftermath of ‘Liberation Day’, but it is still likely to emerge at 15%, with unpredictable and potentially difficult consequences.
We expect tariffs and tight spreads to undoubtedly lead to intra-sector dispersion in corporate credit as investors begin to price in the impact across supply chains and sector dynamics.”
Markets do not yet appear to be taking account of the disparate impact of tariffs on different sectors, says Winstone, adding: “We expect tariffs and tight spreads to undoubtedly lead to intra-sector dispersion in corporate credit as investors begin to price in the impact across supply chains and sector dynamics.”
Nor is it just corporate credit where pricing looks optimistic – emerging market borrowers are scrambling to issue debt to take advantage of record-low spreads over US treasuries, which have fallen to their lowest level since 2007. Around $250bn (£165bn) in bonds were issued between January and July while the average spread over US treasuries has fallen to less than two percentage points for the first time since the 2000s.
There are sound reasons for this. Emerging market governments are pursuing increasingly orthodox monetary policy regimes, while US policymaking looks increasingly erratic. This would suggest lower spreads between the US and emerging markets – albeit in the shape of a higher yield for the US, rather than lower yields for emerging markets.
The problems in long-dated bonds have a slightly different flavour. For much of this year, investors have been worried about a glut of issuance at the longer-dated end of the market, as government debt levels look increasingly unsustainable and difficult to manage. This is particularly acute in countries such as Japan, where a 40-year bond auction in July saw the weakest demand in 14 years. The UK market has also been subject to this phenomenon, with long-dated bond yields rising significantly since the start of the year.
It is a complex backdrop and, in recognition of the potential issues, multi-asset managers have been turning away from conventional bond strategies. “Government bonds provide you with a huge amount of duration volatility and we have been very deliberate into trying to manage that,” says Ian Rees, head of multi-manager at Premier Miton.
“Corporate spreads look incredible tight. We can still justify holding high-quality investment grade because, although the spread is tight, the all-in yield is quite attractive and there are far fewer default concerns than even with sovereigns. Within sovereign bonds, deficit issues are back on the bond vigilantes’ radar. UK gilts and US treasuries have been under pressure.
“Sub-investment grade looks like an accident waiting to happen. Investors are just not paid for the risk. It does not take a lot for defaults to pick up and, when they do, recovery rates are going to be pretty woeful. There is hardly any covenant protection.”
Sterling rates are so high we are paid to hedge. If a country’s debt yields 6%, we can hedge it back and get 8%.”
As a result, Rees is turning to areas such as asset-backed securities and structured credit, where yields are still high but the risks look less pronounced. These products got a bad name during the credit crisis but are now well-regulated and higher-quality, he says, adding: “There is a yield premium because people still find it challenging to go there. They are lower-duration in nature, though, and take out the volatility.” M&G has recent launched a fund in this area – the M&G IG Asset-Backed Securities fund, which Rees likes.
He is also looking at catastrophe bonds, which pay a high yield and are uncorrelated to other parts of the fixed income market, while financial bonds are another area of focus. “The regulations for banks are now much stricter, and higher interest rates have really improved bank profitability,” he explains. “Insurance bonds are also doing well.”
For his part, David Coombs, head of multi-asset investment at Rathbones, is willing to hold government debt, but is selective where he holds it. “We are sellers of credit and it is currently below 1% in the portfolio,” he says. “Where we do hold sovereign debt, it is in countries such as Romania or Portugal and we hedge back to sterling. Sterling rates are so high we are paid to hedge. If a country’s debt yields 6%, we can hedge it back and get 8%.”
Nevertheless, Coombs admits that cash is also playing a role in his fixed income allocation – indeed, it currently makes up more than 8% of the Rathbone Strategic Growth portfolio. “That’s a tactical decision,” he explains. “Value is scarce at the asset class level.” It also gives him the option to deploy capital quickly as markets make sense of the current environment.
In common with global equities, fixed income markets have seen a significant relief rally in the wake of the US tariff announcements back in April and may now have gone too far. Multi-asset managers are treading carefully as value looks increasingly hard to find.
Read more on this from the FT here and from Janus Henderson here
In focus: Hole picture
Jerome Powell, chair of the US Federal Reserve, gave stockmarkets something to cheer last week as he hinted at a potential September rate cut in his Jackson Hole speech. “The balance of risks are shifting,” he noted – and investors duly bumped up their expectations for a quarter-point cut at the upcoming Fed meeting.
The S&P 500 rallied 1.5% on the day – and yet Powell’s speech had a pessimistic flavour to it, which may have deterred a stronger rally. “Downside risks to employment are rising,” he warned, while also confirming the Fed was still worried about inflation as “tariffs could spur a more lasting inflation dynamic” through second-round effects.
For George Brown, senior economist at Schroders, “This means the September decision will hinge on the outcome of the August jobs and prices data. But the market has interpreted the remarks as confirmation easing is imminent.
“Futures now point to a 90% probability of a 0.25% cut, but we think the decision is closer to 50/50, given the emphasis placed on upcoming data. For now, we are sticking to our call that the Fed will remain on hold this year, but equally judge there could be a couple of rate cuts instead.”
For his part, Luke Bartholomew, deputy chief economist at Aberdeen, reckons it is still possible either a nasty inflation surprise or a huge recovery in employment data could derail a cut – although he adds: “A September move is overwhelming the most likely outcome.” He says the appointment of Stephen Miran, the Republican’s likely choice of Monetary Policy Committee member to replace Adriana Kugler, would make a cut more likely.
“If the administration succeeds in getting Lisa Cook to leave her role, another seat will open up,” he continues. “So Powell’s authority may start to drain away in the coming months, with markets increasingly looking to the preferences of his likely successor. This may make it more difficult to keep inflation expectations anchored during this period of higher inflation and put upward pressure on long-term treasury yields.”
The 30-year treasury yield remains below the psychologically important 5% level – albeit at 4.9%, and dropping slightly on the day. Long-dated bonds have had a wobbly ride, however, and any blow to the credibility of the Federal Reserve could similar dent buyer confidence.
While a potential rate cut is good news, it is unlikely to be greeted with the bullishness that has characterised previous central bank easing. There is too much baggage surrounding Fed cuts for investors to be uniformly excited.
Read more on this from the Federal Reserve here and from the FT here
