Written by Ilaria Massei
Global equity markets rose last week with the MSCI All-Country World Index up +1.1% while global fixed income markets as measured by the Bloomberg Global Aggregate (Hedged to GBP) were flat.
The annual inflation rate in the US held steady at 2.7%. Although this is an increase from the 2.4% rise in May this year, the increase was expected by the market. Core annual inflation which strips out volatile components like food and energy, was at 2.9%, below expectations and a tick above the previous month. This was well received by equity markets, with the S&P 500 gaining +1.1%. On the fixed income side, volatility increased due to speculation that Federal Reserve (Fed) Chair Jerome Powell might be removed from his role before his term ends in 2026. Trump has been a fierce critic of the chair of the Fed as the central bank has paused further rate cuts so far this year but said that he would not remove Powell. This helped ease concerns about threats to the Fed’s independence, which is a key factor for monetary policy stability.
In the UK, inflation remains more persistent than in other regions, struggling to move towards the 2.0% target, with the annual rate coming in higher than expected at 3.6%. The main driver was higher transport costs, especially fuel. Core inflation was also above expectations and higher than May’s reading, coming in at 3.7%. With inflation still elevated, the Bank of England is likely to delay any rate cuts, which weighed on UK fixed income markets. The Bloomberg Sterling Aggregate Index declined by -0.4% for the week. As a reminder, we have no direct exposure to UK Gilts, which we continue to see as less attractive compared to other fixed income opportunities given ongoing inflation risks.
Elsewhere, Japan held national elections over the weekend. While the ruling Liberal Democratic Party led coalition missed an outright majority by a few seats, the fact that this outcome was broadly expected by the markets should avoid resulting in substantial turmoil. Prime Minister Shigeru Ishiba could face some pressure following the result, but he has indicated he intends to stay in charge. The equity market leading into elections, as measured by the MSCI Japan, rose +0.1% last week. Returns for GBP investors were held back by a weaker yen as Japan’s interest rates remain significantly lower than elsewhere, contributing to currency weakness and reduced appeal for foreign investors. Additionally, Japanese companies are continuing to unwind long-standing “cross-shareholdings,” where firms own shares in each other, as part of broader efforts to improve corporate governance. While this may weigh on performance in the short term, we see these reforms as positive for long-term investors and we remain constructive on the Japanese equity market, which remains attractively valued, particularly compared to the US.
In conclusion, while short-term factors like political uncertainty, or currency movements can create market volatility, we see these as opportunities – particularly in areas that may be underappreciated or overlooked. We remain focused on a long-term approach to positioning as we think is the best way to navigate short-term uncertainty.
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 21st July 2025.
© 2025 YOU Asset Management. All rights reserved.
