Market Square Commentary from George Square Financial Management in conjunction with Albemarle Street Partners
New heights and a cautious calm
Asset markets saw limited progress last month as investors digested new macroeconomic data. The US economy is slowing, yet it is handling tariff uncertainty. Business Manager Surveys (PMIs) remain weak, but retail sales have stabilised. All eyes, including those of the Fed, are on the labour market, where the data is mixed. New job openings have slowed, but layoffs have not increased sharply outside the government.
Jerome Powell’s final Jackson Hole address confirmed that the Federal Reserve expects conditions for a rate cut in September. A cut now and another in December would reflect the temporary effects of tariffs and support rate-sensitive consumer spending.
In Europe, economic data improved as German manufacturing sentiment and UK retail sales rebounded. The UK’s 30-year gilt yield climbed to 5.7%, its highest since May 1998, amid rising fiscal concerns. Investors are focused on the Autumn Budget, as Finance Minister Rachel Reeves is widely expected to raise taxes to meet fiscal targets. They are also watching for signals from the Bank of England on interest rate cuts.
Across Asia, there is continued uncertainty surrounding the impact of US trade policy. While China continues to seek a comprehensive trade deal, others in the region will seek to hasten their shift to intra-regional trade. Japan is seen as a relative beneficiary, as its quickly negotiated trade deal and weakened currency provide a competitive edge to its exporters.
The second quarter US corporate earnings provided a fundamental basis for continued optimism. Year on year earnings increased by 11.9% (source: FactSet), marking the third consecutive quarter of double-digit earnings growth. While analysts expect earnings growth to slow in the second half of 2025, companies have found multiple ways to expand margins, despite cost pressures.
Digesting the data
Despite limited progress in August, developed equity markets are close to reaching or have reached new all-time highs. Weakness in manufacturing and other cyclical sectors continues to fuel narrow leadership in the US. Technology, industrials, and financials have dominated year to date performance.
In Europe, banks, industrials (defence), and rate sensitive sectors such as utilities and telecom services have done well. European equities have been the standout story in 2025. UK equities have been helped by the strength of financial, oil, and materials stocks.
Bond markets have rallied in anticipation of easing monetary policy. UK Government debt (gilts) has been the exception and have lagged most fixed income sectors in 2025.