During the quarter, global markets continued to be shaped by geopolitical tensions, persistent inflation, shifting interest-rate expectations and concerns over government finances. Investors had hoped that easing inflation would give central banks greater scope to cut borrowing costs. Instead, renewed volatility in energy markets and geopolitical uncertainty complicated the outlook, leaving policymakers cautious and markets highly sensitive to economic data.

Equity markets remained relatively resilient. US shares benefited from strong corporate earnings, enthusiasm for artificial intelligence and expectations of continued economic growth, despite restrictive monetary policy. However, higher bond yields periodically pressured valuations, particularly for growth and technology companies. The contrast between resilient equities and weaker long-duration bonds was a defining feature of the summer.

Bond markets faced a more challenging environment, with rising sovereign yields reflecting concerns about inflation, government borrowing and the prospect of interest rates staying higher for longer. In the UK, gilt yields remained under pressure as investors assessed inflation and the government’s fiscal position, while US Treasury yields continued to influence bond markets worldwide.

Inflation remained central to the investment debate. UK CPI inflation rose from 2.6% in June to 2.9% in July, staying above the Bank of England’s 2% target. Higher energy prices and geopolitical disruption also renewed concerns that inflation could prove more persistent, prompting central banks to balance inflation control against the risk of weakening economic activity.

By the end of August, sentiment had turned more cautious and selective. Geopolitical risks, fiscal concerns and uncertainty over monetary policy remained firmly in focus as investors weighed higher bond yields against the prospect of further market volatility.