| President Trump’s grand tour and unexpected cabinet changes kept the UK in the headlines through September. The Chancellor warns we should brace for tax rises, though that may not lift Labour in the polls. The US cut interest rates, but the Fed remains gun-shy over another inflation spike alongside a weakening labour market. Markets are up strongly in 2025 but beware of (over)exuberance. The UK was in the spotlight for much of September, with US President Donald Trump’s state visit delivering pageantry and the resignation of Deputy Prime Minister Angela Rayner providing the internet with plenty of new material. Her departure drew particular attention after it emerged she had underpaid stamp duty on a new property - mildly embarrassing, given she was also the Housing Secretary. Elsewhere, Chancellor Rachel Reeves had the now wearisomely familiar task of laying the groundwork for tax rises in the Autumn Budget. She suggested this was largely due to forces beyondher control: wars in Ukraine and the Middle East, Trump’s tariffs, and higher global borrowing costs. But the mood in the UK suggests the public isn’t entirely buying this. Labour continues to languish in the polls while Reform gathers momentum. Though Labour has been in the driving seat for only a year, it has struggled to deliver the growth it promised and, if we may be so bold, higher taxes may not be the solution. More important for the global economy and financial markets is the US, where the Federal Reserve cut interest rates for the first time since December. Although there are signs of weakness in the labour market, inflation is proving a stubborn little fiend. The Fed is therefore trying to chart a course between not giving inflation too much runway and not crashing the economy. It’s a tricky tightrope, bringing to mind the old aviation saying: “a good landing is one you can walk away from; a great landing is one where you can use the airplane again.” To complicate matters, as we go to press the US government has announced its first shutdown in nearly seven years, following Congress’s failure to agree on a spending budget for the coming year. While essential services such as law enforcement and federal courts typically continue to operate, the overall impact on the economy is likely to be negative. On the market front (more on this below in the Q&A), 2025 has been a strong year for returns so far, despite the geopolitical backdrop so helpfully highlighted by our Chancellor. Yet tensions remain high in several regions, some markets have run up a long way, and the economic picture is far from a slam dunk. So, we’d suggest a little caution might be wise. Bottom LineMarkets remain fixated on many of the same data points they once paid little attention to, namely inflation, interest rates, and employment. Where these go from here is anyone’s guess, but the more consensus builds in one direction, the more cautious we become. We believe it is prudent to remain alert to the risks, particularly if inflation proves sticky and interest rates stay higher for longer than markets currently expect. |
| Q&A: What’s on your mind? |
| How have global bond markets performed this quarter? Global bond market returns were mixed over the quarter. Short-dated government bonds (those maturing soon) generally made small gains. In contrast, UK government bonds (Gilts) struggled, held back by worries over the government’s finances and political uncertainty. Longer-dated Gilts, which tend to be more sensitive to these concerns, were hit hardest, with 30-year Gilt yields rising to levels last seen in the late 1990s. Investor concerns about sovereign debt levels and government capacity to implement reform and maintain fiscal discipline, extended beyond the UK. Longer maturity government bonds in the US, Japan, and France also saw a fall in value over the quarter. However, more recently, pressure on long-dated bonds has begunto ease, as central banks look to reduce the supply of these bonds – which historically has increased prices (lowering yields). Riskier corporate bonds continued their strong year-to-date performance into the quarter, supported by robust fundamentals, expectations of lower interest rates, and resilient economic data. Higher quality investment grade corporate bonds delivered more modest gains over the quarter. How have global equities performed this quarter?Summer is often a quieter time for investors, with many people taking a step back to enjoy the holidays. However - in an almost oxymoronic manner - the third quarter has historically tended to be the trickiest period for equity markets, often delivering the weakest returns of the year. Despite a backdrop of ongoing geopolitical tensions, trade tariffs, and plenty of economic uncertainty, equity markets powered ahead over the summer. Returns across most regions were positive, with gains comfortably in the mid-to-high single digits, and in some cases well into double digits. That makes Q3 a clear standout compared to the more uneven performance earlier in the year. Among the leaders were the emerging markets and broader Asia, while the laggards include the closer to home UK and European markets. So far, 2025 has been full of surprises, and Q3 was an important reminder that sometimes the market narrative doesn’t play out the way history suggests. This year, the 'quiet summer' turned out to be the best period of the year so far. And while uncertainty will no doubt remain a theme, staying invested and remaining diversified across different regions and sectors continues to prove its worth. How will the FCA’s October rule change reshape crypto investing in the UK? From the 8th of October, the UK Financial Conduct Authority (FCA) will lift its over four-year ban on retail access to cryptocurrency exchange-traded products (ETPs). Retail investors will be able to buy crypto ETPs through FCA-approved domestic exchanges, marking a notable shift for the asset class in the UK market.Until now, UK investors could only access crypto through specialist platforms, restricting mainstream adoption and preventing the use of tax-advantaged wrappers. Globally, crypto adoption has accelerated: in July 2025, assets in crypto exchange-traded products reached $211 billion. In the UK, 3.3 million adults own crypto, nearly half of whom hold no other assets. Among 18 to 24-year-olds, an estimated 46% invest in crypto, making it their most popular investment. Real-world applications are also expanding, from stablecoins that speed up cross-border payments to tokenisation of assets like real estate. Initially, UK investors can expect access to Bitcoin and Ethereum ETPs from a variety of providers. However, we caution investors against jumping headfirst into this opportunity; digital assets carry significant idiosyncratic risks that should not be overlooked. Professional investment advice should always be sought. |
