Global equity markets enjoyed a strong quarter, reaching fresh highs despite continued uncertainty around US trade policy. Corporate earnings proved resilient, economic data beat expectations, and long-term growth themes such as artificial intelligence, cloud computing, and the energy transition continued to attract capital. While performance in the United States remained concentrated in the so-called ‘Magnificent 7’ technology companies, signs of a broader recovery began to appear and much of the recent strength in global growth can be attributed to the front-loading of economic activity ahead of the anticipated imposition of tariffs.
The rollout of tariffs has been more measured and differentiated than initially feared, helping to mitigate immediate disruptions. In the United States, the Trump administration’s ‘One Big Beautiful Bill Act’ introduced retroactive tax breaks for research and development and capital expenditures. This policy shift has catalysed a notable increase in business investment, even as job growth has slowed. Agreements on tariffs between the US and its principal trading partners have provided increased stability, and although negotiations with China are ongoing, there is optimism that a resolution will soon be achieved. However, the direct effects of tariffs remain uncertain, primarily because significant stockpiling earlier in the year has yet to unwind. Consequently, fluctuations in US trade policy continue to be a major driver of financial market movements as the year draws to a close.
UK equities also advanced, however the UK macroeconomic backdrop remains mixed. Growth is sluggish, wage growth is cooling, and further fiscal tightening is expected in the November Budget. Inflation is trending down toward target, but the Bank of England has so far adopted a more cautious stance than the US Federal Reserve. Markets may be underestimating how much further policy could ease into 2026 if growth remains weak.
The Autumn Budget on 26th November may have significant ramifications. According to revised Office for Budget Responsibility (OBR) projections, the government faces a £30bn shortfall in public finances. While the OBR plays a central role in shaping fiscal policy, questions continue over whether its long-term statistical assumptions are fit for purpose. With the November Budget approaching, The Chancellor faces considerable pressure to tighten policy, likely through a mix of small tax rises and restrained public spending.
The Federal Reserve cut rates by 0.25% in the quarter and has signalled further easing of up to 1.25% over the next year, as slowing job growth outweighs inflation concerns. In contrast, the Bank of England has been more restrained, but four more rate cuts are likely over the next 12 months to counter fiscal tightening and weak growth. The European Central Bank has already implemented a more aggressive easing programme, while the Bank of Japan may modestly tighten as domestic demand stabilises.
Financial conditions across major currencies have become less restrictive, with ongoing weakness in the US dollar providing much-needed support to many developing economies. Over the past decade, the US dollar has experienced a prolonged secular bull market, demonstrating resilience both during periods of US-led global economic expansion and as a safe haven during times of financial market volatility. Recently, several factors have prompted a more cautious outlook among investors regarding the future path of the dollar. The recent downgrade of US government debt has also highlighted the persistent federal budget deficit and the rapidly increasing government debt burden as the economy slows. Perhaps even more significant is the direction of US government policy. Since beginning his second term, President Trump has made it a priority to reduce the US trade deficit through tariffs, renegotiation of international agreements and a concerted effort to address concerns about an overvalued dollar.
The Eurozone delivered steady if unspectacular returns. The European Central Bank was able to ease policy more aggressively than the US or UK, supported by lower inflation and reflationary fiscal initiatives. Increased industrial and defence spending has created a more supportive backdrop for European equities, with Germany’s fiscal stimulus still to come through in full.
In Asia, markets were supported by a de-escalation in the US-China trade conflict and a more balanced US-Japan trade agreement. Japan’s economy was buoyed by stable domestic consumption, helped by government price controls, although external risks remain. China has maintained growth, but recent weakness in retail sales and industrial output has prompted policymakers to step up fiscal and monetary support, including measures to stabilise financial markets.
While a weaker dollar has eased conditions for emerging markets, it has also supported commodity prices – and it is worth highlighting that gold has been a standout performer this year. Prices have risen by nearly 40% since the start of 2025, fuelled by central bank buying, geopolitical tensions, and its safe-haven role amid uncertainty over the Federal Reserve’s independence. In fact, gold has now overtaken the euro as the second-largest reserve asset held globally after the dollar. This performance underlines its role as a valuable hedge against the risk of stagflation.
Looking ahead, a moderating global growth profile can be expected, with near-term headwinds from trade policy and fiscal tightening, gradually offset by easier monetary conditions. Structural growth themes such as AI, energy transition and digital infrastructure remain attractive, while gold continues to offer a hedge against policy missteps and market volatility.
The value of securities and the income from them can fall as well as rise. Past performance should not be seen as an indicator of future returns. All views expressed are those of the author and should not be considered a recommendation or solicitation to buy or sell any products or securities.