We saw positive movements in global financial markets through August, reflecting a degree of renewed optimism, as equities across most regions delivered gains, while bond investors found some relief with central banks signalling interest rate cuts ahead. Movements in currency markets, however, saw a strengthening of the euro versus most major currencies, reducing gains for euro investors.
Across developed markets, Japan stood out as the month’s strongest performer, with the MCI Japan index (above in blue) gaining 4.5%, in EUR terms, advancing on the back of improving economic momentum and a positive trade agreement with the United States. Domestic data news was encouraging, particularly regarding economic growth and manufacturing activity.
Elsewhere, European equities reacted well to improving business activity and posted modestly positive returns, with the MSCI Europe index (in purple) up just over 1%. Political turbulence in France, following the announcement of a vote of no confidence in the government, pulled back French markets.
In the UK, the FTSE 100 advanced 0.3% in August, supported by its global exposure, while more domestically UK shares declined, reflecting ongoing concerns about the UK’s economy. The Bank of England cut interest rates by 25 basis points in August, but the effect was offset by stronger-than-expected inflation data later in the month. While employment weakened, inflation pressures remain, suggesting that fewer interest cuts were likely over the remainder of the year.
U.S. equity returns were slightly negative, with the S&P 500 (shown in green) down 0.5% in August. While US markets benefited from strong corporate earnings and solid momentum in both manufacturing and services – a weaker U.S. dollar over the month eroded gains once translated into euros.
Across Asia and emerging markets, equities advanced, supported by the temporary extension of the U.S. – China trade truce, which offered welcome relief to regional exporters. Chinese technology stocks also benefited from Beijing’s announcement of an ambitious semiconductor strategy. However, again, euro strength offset these gains, leaving the MSCI Emerging Markets index down 1.2% and the broader Asia index lower by 1.0%.
From a style perspective, the rotation that began earlier in the summer continued into August with small-cap stocks outperformed large caps, supported by resilient economic data and growing expectations of lower U.S. interest rates in the months ahead. Global real estate equities also gained for similar reasons, with solid U.S. corporate fundamentals providing an additional boost to the asset class.
Fixed income markets delivered mixed results in August, with performance varying across segments. Global corporate bonds outperformed global government bonds, with the Bloomberg Global Aggregate Credit Index (above in orange) rising 0.5% as strong earnings boosted confidence in corporate balance sheets. U.S. Treasuries experienced a volatile month: heavy issuance of more bonds and persistent deficit concerns put pressure on prices early on. However, comments from Federal Reserve Chair Jerome Powell signalling faster rate cuts boosted bond prices, particularly long-term bonds. However, expectations of lower rates in the future lead to U.S. dollar weakness through the month, weakening returns for euro investors.
In the UK, government bond fell even though the Bank of England delivered an anticipated rate cut. Investors were concerned about inflation risks and possible measures in the upcoming Budget. Meanwhile in the euro area, political instability in France weakened their government bonds, even though economic news from the country remained positive. This fed through into weakness for other bonds on the continent. Surprisingly, Greek bonds are viewed as a safer investment in relative terms to their French equivalent. Eurozone bond prices also reacted negatively to reduced expectations of further interest rate cuts from the European Central Bank (ECB). Economic growth remained broadly positive and inflation is approaching its target level, removing an urgency around further interest rate cuts.
Looking ahead, the familiar themes continue to dominate: the pace of central banks cutting interest rates, the path of inflation, and the resilience of global growth. August showed that markets are quick to reward positive surprises in these areas, though currency fluctuations and political risks remain notable drivers of volatility. At Fairstone, we remain focused on ensuring that portfolios are diversified across geographies and asset classes, with continued emphasis on equities as the key driver of returns.
At Fairstone, we specialise in providing tailored investment planning advice to help clients achieve their financial goals. Our experienced advisors offer personalised strategies designed to optimise growth, manage risks, and ensure diversification across a wide range of assets. By working with Fairstone, you can have confidence that your investment decisions are guided by expertise, adaptability, and a commitment to your long-term success.
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This publication was prepared by Imogen Hambly CFA, Portfolio Manager for Fairstone Private Wealth Ltd (United Kingdom).Fairstone Private Wealth Ltd. is authorised and regulated by the Financial Conduct Authority (FRN: 457558)
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Information as of the date of publication 08/09/2025
