Please see this week’s Markets in a Minute update below from Brewin Dolphin, received yesterday afternoon – 19/08/2025.
Global stocks hit record high
Janet Mui, Head of Market Analysis, discusses how global stocks have hit a record high, the weak UK economy, and how geopolitical risk may be easing.
Key highlights
- Stocks rally: Good news drives global stocks to new highs.
- Rising bets on Fed cuts: U.S. inflation in July was broadly in line with expectations, fuelling the prospect of a September rate cut.
- The devil is in the detail: UK Q2 GDP was better than expected, but government spending was doing most of the heavy lifting.
Stocks made new highs as good news keeps coming
Global stocks hit yet another new high last week, driven by the continued good news. Investors are now embracing a scenario where inflation remains under control despite tariffs, a growing likelihood of Federal Reserve (the Fed) rate cuts, and easing geopolitical risks.
One of the most closely watched geopolitical events in recent times was the Alaska Summit, where President Trump and President Putin met face to face. There has been no breakthrough, which isn’t surprising given the highly contentious issues remaining, such as territorial disputes.
The event was followed by a high-profile meeting between President Trump and President Zelenskyy, amongst European leaders in Washington. The joint pledge by the U.S. and Europe to begin discussions and work on long-term security guarantees for Ukraine marked a shift to a more conciliatory tone from Trump. While a full ceasefire remains difficult, investors are contemplating the idea that this could mark the beginning of the end of the war in Ukraine.
Overall, even without a peace deal, coordinated diplomacy offers a positive signal for market sentiment.
U.S. inflation report supports a September rate cut
U.S. consumer price index (% year-on-year)
Source: Bloomberg
Last week’s U.S. inflation report for July was broadly in line with expectations. Headline inflation remained at 2.7%, while core inflation (excluding food and energy) picked up from 2.9% to 3.1% year-on-year.
Most of the inflationary pressure came from services including airfares, insurance and recreation. Although tariffs did show up in categories like furnishings, auto parts and food, the broader inflationary impact was less severe than feared – at least for now.
However, the U.S. producer price index (PPI) data told a more cautionary tale. Both headline and core producer prices rose more than expected in July, which points to rising input costs that may gradually feed through to consumer prices. The tariff effect is likely to build over time as inventories deplete and companies may raise prices on newly imported goods.
But businesses tend to be adaptive when managing their supply chains and bottom line. They may cut costs in other areas of the business, distribute price changes among other countries (for global companies) and negotiate lower prices with overseas suppliers to offset some direct tariff impact. So far, the data suggest tariffs are mildly inflationary in a gradual manner and aren’t creating a real shock.
With the recent economic releases, markets are leaning towards a Fed rate cut in September, with a total of two cuts priced in by year-end. Supporting that view, Treasury Secretary Scott Bessent said in a Bloomberg interview this week that the Fed funds rate should be 150 to 175 basis points lower, based on macro model estimates.
With the potential appointment of a new, dovish-leaning Fed chair post-Jay Powell, and the recent appointment of Trump-ally Stephen Miran as temporary Fed Governor, it’s no wonder that markets are gearing up for rate cuts. That said, Fed officials are likely to remain cautious around the uncertain transmission of tariffs and the continuation of strong services inflation.
The September policy meeting is likely to happen, but the Fed will still have the inflation and jobs data for August to consider before acting.
UK GDP surprise – what’s behind the numbers?
Contributions to UK GDP Growth (% quarter-on-quarter)
Source: Bloomberg
The devil is in the detail. This rings true for the second quarter UK gross domestic product (GDP) report. While monthly GDP rose 0.4% in June and Q2 GDP rose by 0.3% – which exceeds estimates – the underlying picture is weak. Pretty much all the growth in Q2 was driven by a jump in government spending while the private sector struggled.
Business investment dropped sharply by 4% as policy uncertainty and tax hikes led firms to put the brakes on expanding. Consumer spending slowed markedly and was close to stagnant as households tighten their belts under economic uncertainty, especially as ongoing speculation about further tax rises in the Autumn Budget keeps people cautious.
On the labour market, job losses persisted, and job vacancies continued to fall. Although wage growth has slowed as the job market has loosened, it remains elevated at 4.6% year-on-year, which is well above the level consistent with the 2% inflation target. This puts the Bank of England between a rock and a hard place. The job market is slowing down, which means interest rates should be lowered – but with wages still rising and inflation higher than usual, a rate cut might not be the best choice. As a result, the hurdle for further policy easing is high and markets are pricing in a 60% chance of another rate cut by the end of the year.
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Charlotte Clarke
20/08/2025