Written by Ashwin Gurung
In the US, inflation, which measures how quickly the prices of goods and services are rising, cooled for a second consecutive month in July, easing some of the pressure on the Federal Reserve (the Fed) to raise interest rates again. Annual inflation slowed to 3.4%, while weaker consumer spending suggested the US economy may be cooling. As a result, investors became less concerned about a rate rise at the Fed’s September meeting, helping shorter-term borrowing costs fall. This supported the US market, with the S&P 500 reaching a record high last week and gaining +0.4% in local currency terms. However, the weaker US dollar (-0.3%) meant returns fell to -0.1% for UK investors in sterling terms.
Longer-term US borrowing costs, however, stayed high as investors remained concerned about the large amount of government debt being issued and the US government’s ability to fund its substantial borrowing needs. Last week alone, the US government borrowed a further $25bn for 30 years and had to pay 5.2% a year to do so – the highest cost since 2001.
In Asia, renewed enthusiasm for AI and chip stocks helped lift emerging markets, particularly South Korea. MSCI Korea surged +12.8%, while MSCI Taiwan rose +3.9% as confidence in the sector improved. Chinese equities moved the other way, falling -3.5%, as investors were disappointed by the lack of major new measures to support the economy. Overall, the MSCI Emerging Markets index, which tracks the share prices of larger companies across developing economies, returned +2.2% over the week.
Japanese markets also rose +2.1%, supported by strong technology earnings and gains in bank shares as investors expected the Bank of Japan to raise interest rates sooner than previously thought. The yen, by contrast, weakened again against a basket of currencies over the week, a sign that earlier efforts by Japanese authorities to support it have had little lasting effect. A weaker yen makes imports such as energy and raw materials more expensive, which adds to inflation concerns.
Closer to home, the UK economy grew by 0.4% in the second quarter, helped by warmer weather and World Cup-related spending. Stronger growth increased expectations that the Bank of England may keep interest rates higher for longer, pushing government borrowing costs up and supporting the pound. However, the stronger pound weighed on the FTSE 100, which fell -1.1% over the week. The index includes many large UK companies that earn a significant share of their income overseas. When the pound strengthens, those overseas earnings are worth less when converted back into pounds. The FTSE 250, which contains a larger proportion of domestically focused businesses, fared better, returning +0.2%.
It was a relatively positive week for markets, but uncertainty has not gone away. Our portfolios are well diversified and positioned to navigate changing market conditions.
All performance figures are stated in Sterling terms, unless otherwise specified.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 17th August 2026.
© 2026 YOU Asset Management. All rights reserved.