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Hello and welcome to the August 2025 Monthly Market update.

My name is David Aujla and I'm the Lead Portfolio Manager for Invesco Summit Multi-Asset Fund Ranges and its model portfolio service.

Traditionally a quieter month for markets, August was actually a positive one for most major asset classes. Generally speaking, riskier assets outperformed more defensive assets, with global equities up around 2.5% in local currency terms and global bonds, when hedged back to sterling, up around half a percent.

Currency had a meaningful impact on global equities, which of course are typically owned unhedged. In sterling terms that 2.5% return actually becomes a mere 0.4% return due to the dominance of US equities in the global index and the continued weakening of the US dollar against sterling.

So for a sterling based investor, it's actually likely that in August, bonds performed similarly to equities when looked at in aggregate.

Within equities, developed market equities outperformed emerging market equities. Japanese equities led the way, supported by good economic data, including a better than expected GDP growth number and strong core machinery orders, which were, of course, important for Japan, given a fairly strong reliance on exports.

In the US, equities also performed well, at least in dollar terms, supported by solid corporate earnings, which helped offset more downbeat sentiment around the labour markets and, of course, around inflation given the ongoing narrative around tariffs.

Closer to home, equities performed well, but lagged the rest of the developed equity world, perhaps partly due to concerns around the persistency of inflation here and what that might mean for rate cuts. Despite that, it's worth mentioning that towards the latter part of August, the FTSE 100 did indeed reach a new all time high.

In Europe, returns were also positive. There was relatively resilient eurozone economic data, but political uncertainty in France did temper returns a little.

And when we look to the emerging world, returns were positive there too. Chinese equities did well, benefiting from a softening of sorts in US trade relations and some positive policy announcements domestically around Chinese technology. Latin American equities benefited from a weakening US dollar, but also some strong commodity prices, such as copper. But it is worth pointing out that the price of oil did fall markedly during the month.

In market cap and style terms, smaller companies outperformed their larger counterparts and value stocks outperformed growth. That was in part due to investor caution over the tech sector's AI driven rally. A report from MIT indicated that a significant majority of AI projects in the corporate world had yet to deliver substantial financial returns.

Outside of equities in the fixed income markets, returns were positive across the board there, too, but muted. On a sterling hedged basis, global government bonds returned around 0.3%. In the US, the interest rate curve steepened, with short term yields falling on rate cut expectations but longer term yields rising on concerns around inflation, some about debt sustainability but also around Federal Reserve independence, which is an ongoing narrative in the marketplace.

In Europe, yields rose a little and prices therefore fell on positive eurozone economic data, the stuff I mentioned earlier, and here in the UK, gilts were under pressure on sticky inflation and concerns about the lack of fiscal wiggle room available to the Chancellor.

Investment grade corporate bonds performed a little bit better with spreads, which is the difference between the bond yield and the underlying equivalent government bond yield, tightening during the month. The shorter duration, high yield corporate bond market performed better still, so the riskier parts of the market from a credit perspective, and while spreads were largely unchanged, falling short term yields in the US helped.

Elsewhere in the high yielding part of the fixed interest world, emerging market debt, which is typically unhedged, unlike developed market fixed income, performed similarly.

In terms of monetary policy, The Bank of England cut rates by 25 basis points, or 0.25%, down to 4%, which is, of course, good news for those looking for a mortgage. But guidance remains cautious due to high services inflation and data showing the UK unemployment rate was actually at a four year high in the second quarter. That data got released, of course, mid-month.

There was no cuts from the US Federal Reserve, but at the Jackson Hole Symposium, Jerome Powell indicated a near term interest rate cut was likely to be necessary due to a challenging situation of a weakening economy and a cooling labour market, alongside increased inflation risk due to tariffs.

Overall, investors saw an increased likelihood of a cut in September, but it's probably fair to say that the Fed will stay in its data dependent “wait and see” type approach.

The ECB, the European Central Bank, which takes a similar data dependent approach, also left rates unchanged, although it seems to be currently in a less challenging position with the economy remaining resilient, domestic price pressures continuing to ease and wage growth slowing.

In contrast, while there was no policy move from the Bank of Japan, the minutes of their meeting showed growing confidence in the economic recovery and their openness to another rate hike this year. Evidence of interest rate divergence amongst major developed economies we're seeing now for the first time in many, many years.

As I said in the last few updates, I believe volatility will remain elevated and given the level of uncertainty in markets, I think having a well diversified portfolio and the tools to adapt to those changing conditions are a must in my opinion.

I hope you got the chance to take a well-earned break over the summer, which certainly feels like it's now over. And I suspect a few parents out there are looking forward to a bit of respite when school starts again very soon.

I'd like to thank you very much for taking the time to watch this month's review. I'll see you next time. But as always, if you have any questions in the meantime, please get in touch.