CIO's Market Watch - August 2025

Jackson Hole in the headlines

If you search Jackson Hole images in Google you will find pictures of amazing powder skiing (it is, I’ve been there) and fabulous summer hiking. But as you scroll down, you start seeing pictures of Jerome Powell, Chair of the US central bank, the Federal Reserve (Fed), which holds an annual conference there each year, where global financial leaders gather for meetings and speeches.

It’s always closely followed by economists and investors for clues to what key decision makers are thinking and how that might influence policy decisions. This year it was more in the spotlight because, like most major developed countries’ central banks, the Fed is independent of its government in its decision making, notwithstanding how members are appointed. However, at the moment, you could argue considerable political influence is being exerted on the Fed.

The President has called for interest rate cuts at a speed and scale that only occur in periods of crisis, such as Covid and the 2008 global financial crisis. The Treasury Secretary has applied pressure as well. At one stage the President called for the removal / resignation of Powell and is currently trying to change the make-up of its policy committee, which has ended up in the courts.

So, the August 2025 conference was in the spotlight for many reasons. The outcome though, was not really earth shattering. The major debate on the US economy relates to the strength of economic growth, persistent inflation and the ability to cut interest rates. Lower interest rates are expected to be positive for economic growth, but can also be inflationary.

The US economy has remained robust in the face of the introduction of tariffs, but can hardly be called booming. The economic data on growth, employment, consumer and business spending and confidence is ambiguous. You can read into it whatever you want to, depending on any predisposition you have. Meanwhile, it is clear that inflation remains a problem. Therefore; cut or not to cut interest rates, that is the problem!

The Fed will remain thoughtful and watch the data closely. However, financial markets are expecting a 0.25% cut at the Fed meeting on 17 September and another 3 or 4 similar cuts by this time next year. That will depend on the actual data we see and will impact markets.

Is there a government budget in the UK every month?

It feels like it!

This chart shows the yield of the UK 30 year gilt (government bond). It has been in the news as it has been going up. The yield can be thought of as the amount the government needs to pay to borrow money, in this case to be paid back in 30 years. The yield is a result of, and moves because of, many factors, including interest rates and inflation, but government finances play a huge part as well.

UK 30 year gilt yield, over the last 30 years.

Source: Bloomberg 01.09.1995 to 29.08.2025. The performance information presented on this page relates to the past. Past performance is not a reliable indicator of future returns.

As you can see it is at levels not seen this millennium and higher than the spike caused by the disastrous “Liz Truss budget” in 2022. It fell from the high levels in the 1990’s as interest rates fell in reaction to a bad recession. It had been rising from the low, during Covid, of 0.56% as interest rates and inflation rose. But, interest rates are on their way down now and inflation is much lower and it has risen to 5.6%.

It is the level of government debt, or the so called “£50 billion black hole”, that is driving the yield higher. The upcoming budget will undoubtedly lead to higher taxes and as there are no government spending cuts on the horizon they will need to borrow more as well. Unsurprisingly the gilt market has reacted negatively.

The UK economy is sluggish at best, inflation is sticky and business and consumers are about to face higher taxes. It’s not a great outlook today, meaning we need to be very particular when choosing which UK companies and bonds to invest in. There are some great opportunities, and we are seeking them out.

Hot weather, warm equity markets.

It was a profitable month for investors in equity markets. On a global scale, they were up, with most major regions having a good time.

In Asia, Japan was strong, but China showed the rest of the world a clean pair of heels, rising strongly over the month. Its economy is doing well. There is a clear impact from US tariffs, although they are not as bad as feared and China is finding other places to sell its products. However, that may not be sustainable if countries do not want cheap Chinese imports undercutting domestic suppliers.

The US hit all-time highs during the month, but there was a bit of a change within the market. This Is a generalisation and, of course, may not last, but we saw the likes of Procter & Gamble and General Motors share prices doing well, whilst Nvidia and Microsoft, the world’s two largest companies, share prices fell. You could think of it as “old economy” stocks doing well and “new economy” stocks not. As I have written about many times, the explosion of AI has driven the share prices of companies involved to high levels, so it is not surprising to see some reaction. It could even be argued that it’s healthy.

However, over recent weeks companies have reported their profits and given guidance on future business conditions, Nvidia did so on 27 August, and there can be no doubt that AI spending and usage is still moving at some pace and scale, but the share prices of related companies, to some extent, paused for breath.

If you took your holiday in August, there is plenty to catch up on, but that seems to be the case every month.