Market review: August 2025

In August 2025, the MSCI All Country World Index, a representative measure of global equities, rose 0.4% in sterling terms and 2.0% in local terms. Value-related stocks broadly outperformed growth-related stocks over the period. Japan was the strongest regional market, followed by emerging markets, Asia Pacific and the US, while the UK and Europe trailed but still gained ground, in local currency terms. Major economic releases were generally well received, with inflation close to central bank target levels in many regions. However, the weaker-than-expected US non-farm payroll job report led to a bout of market volatility early in the month. In fixed income, the ICE BofA Global Government Index weakened by 0.6% in sterling terms but added 0.3% in local currency terms. Sterling gained ground against the US dollar.

Major economic releases were generally well received, with inflation close to central bank target levels in many regions. However, the weaker-than-expected US non-farm payroll job report led to a bout of market volatility early in the month.

Crude oil futures prices declined, partly on worries of oversupply given recent weak demand forecasts by the International Energy Agency and plans for new capacity to come online in major oil-producing states. European natural gas futures also fell back against a backdrop of improved storage levels in Europe.

UK equities

The FTSE 100 Index, a commonly used representative index of the UK’s largest equities, was up 1.2% and reached new highs during the month. The FTSE All Share Index, which includes many mid- and small-cap stocks, added 0.9%. The Bank of England cut the Bank Rate by a further 25 basis points (bps) to 4.0%. However, the final vote by the Monetary Policy Commission was finely balanced as the initial vote did not produce a majority decision. The UK’s annual inflation rate continued to climb, reaching an 18-month high of 3.8%, compared with the previous month’s 3.6%, in part because of higher transport costs. The unemployment rate remained at 4.7% between May and June. The preliminary UK manufacturing Purchasing Managers’ Index (PMI) figure for July weakened further into contractionary territory, dropping to 47.3, from 48 during the previous month, on reduced confidence. Conversely, the flash UK services sector PMI saw a robust pickup in August to hit 53.6, compared with 51.8 in July, helped by improved new business. (Note that a PMI figure under 50 indicates contraction.)

At the Jackson Hole Symposium, the Chair of the Federal Reserve (Fed) highlighted the difficult US labour market and higher inflation risks but said that a policy stance adjustment may be warranted. This led to rising expectations for a near-term rate cut.

US equities

In US equities, the S&P 500 Index was down 0.1% in sterling terms but added 2.0% in US-dollar terms. The Nasdaq Composite Index, which has a growth focus, slid 1.5% in sterling terms but eked out a rise of 0.3% in local terms. Technology and growth stocks underperformed. During August, the US government announced it was taking a 10% stake in Intel, a US chipmaker, with a view to boosting the country’s supply security. At the Jackson Hole symposium, the Chair of the Federal Reserve (Fed) highlighted the difficult US labour market and higher inflation risks but said that a policy stance adjustment may be warranted. This led to rising expectations for a near-term rate cut. Non-farm payrolls missed expectations by a wide margin for July, coming in at 74K new jobs versus the 110K expected, while figures for the previous two months were revised lower. In the wake of this jobs report, the US President dismissed the head of the Bureau of Labour Statistics before also trying to fire a member of the Fed Board of Governors, Lisa Cook. Annualised gross domestic product (GDP) in the second quarter was revised up to 3.3% compared with a preliminary reading of 3.0% and the first quarter’s contraction of 0.5%. US annual inflation remained at 2.7% in July. The early reading of US manufacturing PMI for August jumped back into expansion, reaching 53.3 compared with July’s final figure of 49.8, helped by a rise in production and improved new orders. Meanwhile, the preliminary services PMI remained in expansionary territory.

Europe equities

The FTSE Developed Europe ex UK Index moved up 1.2% in sterling terms. At the country level, Switzerland and the Netherlands advanced, while Germany and France declined in local currency terms. After a positive start to the month, French stocks lagged on the prime minister’s announcement of a confidence vote in his government in early September, which came in the wake of a budget spat. Inflation in the eurozone remained at 2.0% in July, in line with the central bank’s medium-term inflation target. The early reading of August’s eurozone manufacturing PMI came in at 50.5, its eighth successive month of improvement. This marked a return into expansionary territory for the first time in close to three years, helped by new order improvements. The preliminary services PMI number remained in expansion.

Japan equities

The FTSE Japan Index added 5.0% in sterling terms and 4.5% in yen terms. Robust economic news and the recently announced US trade deal supported the market. The yen gained slightly against the US dollar over the month. Japan’s GDP registered a 0.3% quarter-on-quarter (q/q) expansion, surpassing expectations and the previous quarter’s upwardly revised figure of 0.1% q/q growth, in part on improved government and business spending. Rhetoric from members of the Bank of Japan’s (BoJ) rate-setting board said that the backdrop for a further interest rate increase appeared to be falling into place, given the pace of wage growth and general labour market conditions. Indeed, the unemployment rate dropped to 2.3% in July, compared with June’s reading of 2.5%. Annual inflation softened to 3.1% from 3.3%. Meanwhile, Japan’s preliminary manufacturing PMI figure for August contracted by less than the market had expected.

Emerging market equities

The FTSE Emerging Index was flat in sterling terms and increased 2.1% in local-currency terms. Brazil, China, South Africa were among the individual country markets to advance, while Korea and India declined. Brazil’s main stock market increased over the month to record highs, helped by foreign investor inflows given the country’s elevated benchmark interest rate of 15% and despite the recent announcement of US tariffs on Brazil’s exports. China’s equities advanced, helped in part by a decline in trade-related tension with the US and the performance of certain technology stocks as the government aimed to boost supplies of semiconductors. Chinese industrial production slowed from 6.8% year on year (y/y) in June to 5.7% y/y in July, its lowest level in nine months. Export growth, however, improved further, rising from 5.8% y/y in June to 7.2% y/y in July, helped by a reduction in tariff tension. There was also a rise in the pace of imports, which grew from 1.1% y/y in June to 4.1% y/y in July. South Korea’s equity market was negatively impacted by changes to domestic tax rules. Korea’s q/q GDP growth rate was revised to 0.7% q/q expansion from 0.6% q/q, and compared with the first quarter’s 0.2% contraction, in part as a result of improved private consumption. As expected, the Bank of Korea held its base rate at 2.5% in August, though it said it was monitoring the debt levels, the housing market and growth outlook.

Asia Pacific equities

The FTSE Asia Pacific ex Japan Index lost 0.3% in sterling terms but gained 1.9% in local terms. At the country level, China, Australia and Taiwan advanced, while India fell back. India was negatively impacted by the US announcement of a 50% tariff because of India’s purchases of Russian oil. Australia’s shares reached an all-time record during the month helped by improved domestic confidence and foreign investor inflows. Taiwan’s equity market also reached a new high, helped by strength in its technology sector and international investor inflows. Elsewhere, Bank Indonesia surprised the market with a further 25bps reduction in its benchmark interest rate as it expects inflation to remain contained and for a relatively stable rupiah. Meanwhile, Indonesia’s annual GDP growth expanded by a better-than-expected 5.1% in the second quarter, compared with a 4.9% gain in the first three months of the year.

Bonds

In fixed income markets, government bonds declined in sterling terms but rose in local-currency terms. The US 10-year Treasury yield declined (prices rose) from 4.36% to 4.23% as job growth slowed. The Fed Chair struck a relatively dovish tone in his Jackson Hole speech, increasing expectations for a near-term rate cut. Yet, the 30-year Treasury yield rose (prices fell), amid concern about the future independence of the Fed. French government bonds yields rose on worries about the potential for ongoing political turmoil and the worries that the government’s budget cuts may not be instigated. UK gilt yields increased on waning expectations for another near-term rate cut and negative sentiment about the country’s overall fiscal position. Japanese Government Bond (JGB) yields rose in August against a backdrop of steady increases in inflation. Comments from the BoJ about Japan’s improving economy added to price pressure on JGBs as expectations for further interest rate increases started to build. Credit increased in local terms and broadly outperformed government bonds. Emerging market local-currency government debt rose in local-currency terms.

Property

The FTSE EPRA Nareit Developed Index, a measure of the performance of Real Estate Investment Trusts (REITs), moved 2.3% higher in sterling terms and 2.1% up in local terms. Note that REITs tend to be sensitive to interest rate expectations. During the month to end-July – the latest period with available figures – the MSCI UK Monthly Property Index was up 0.6%. Rate cuts from the BoE have helped to boost sentiment in the UK commercial property market. The office and industrial segments have generally seen improving demand, with Central London exhibiting relative strength. However, retail has tended to lag other segments of the commercial property market in recent quarters.

* All index data are shown in total return sterling.
Source: FE Analytic