Market Update - 20th August 2025

This morning’s inflation data for the UK showed inflation came in hotter than expected for July, rising to 3.8% compared with 3.6% in June. The core rate also increased to 3.8%. A sharp rise in plane ticket prices accounted for a large share of the monthly increase, with fares jumping 30% due to the timing of the summer holiday season. Meanwhile, services inflation – closely monitored by the Bank of England – accelerated to 5% in July. Although policymakers typically look for a broader pattern in the data before making decisions, economists noted that with wage growth continuing to cool, the chances of further monetary policy easing this year are fading.

After a tense and long-awaited meeting between President Putin and President Trump, on Monday, President Trump hosted Ukrainian President Zelenskyy at the White House, where he pledged to guarantee Ukraine’s security as part of any agreement to end the conflict with Russia. Zelenskyy welcomed the commitment, describing it as an important breakthrough for his country, while noting that the finer details would be finalized over the next ten days. Later, Trump announced on social media that he had spoken with President Putin and had begun arranging a meeting between the Russian and Ukrainian leaders, to be followed by a three-way summit involving all three presidents. In response, European markets reacted cautiously, edging higher overall even while defence shares lagged at the news of a potential ceasefire.

Across the Eurozone, however, there are early signs suggesting that U.S. tariffs are beginning to weigh on exports. Trade data for June showed a 2.4% month-on-month decline in exports, while imports rose by more than 3%. As a result, the seasonally adjusted trade surplus shrank sharply to €2.8 billion, down from €15.6 billion in May. Although policymakers have discussed diversifying trade relationships to reduce reliance on the U.S., shipments to alternative markets such as India and Brazil also fell by around 5% year-on-year in June.

Finally, tech chip giant Nvidia closed the day lower yesterday, dragging down U.S. markets despite there being no clear trigger for the selloff in technology stocks. Analysts pointed to a mix of factors informing the general dip including President Donald Trump’s growing influence over the sector and a broader mood of caution amongst investors.

The Federal Reserve will remain firmly in the spotlight this week as policymakers convene in Jackson Hole for the central bank’s annual economic symposium. Traditionally, the conference has served as a platform for Fed Chairs to signal potential policy shifts or offer comments on the economic outlook. Attention is particularly focused on the Fed’s efforts to strike a delicate balance between curbing inflation and sustaining economic growth, with recent indicators like a cooling labour market and easing inflation adding colour to the debate. Futures markets are now signalling nearly an 85% chance of a rate cut at the Fed’s September FOMC, underscoring growing expectations that the Federal Reserve is poised to loosen monetary policy following a prolonged phase of restrictive financial conditions.

Still to come this week we have PMI data for the UK and Eurozone, Japan’s core inflation rate and UK retail sales.

Nicola Tune, Portfolio Specialist