August investment update - Reflections on June and July 2025

For many countries worldwide, June and July are normally considered the warmer months of the year. For some, extreme heat earlier in the season saw record-breaking temperatures across parts of Italy, France and Spain. Here in the UK, June became our warmest month on record as we also experienced period of intense heat, with temperatures soaring as high as 35.8C in some parts.

The ‘heat’, it seems, was also on for global markets at this time, as investors braced themselves for further upheaval as President Trump’s 90-day tariff pause deadline of 9 July loomed.

Trade tariffs deals

A few days before the date, the US government was engaged in the unusual activity of ‘letter writing’. More than a dozen or so envelopes made their way around the globe to countries such as Japan, India, China and the European Union (EU), each detailing the recipient country’s individual levy they will face from 1 August.

If history was to repeat itself, there was more chance of the President changing his mind before the envelopes were even opened. This time, though, he stood firm on his 1 August deadline. Initially, only the UK and Vietnam had reached trade deals. By the end of July, they had started to filter through, including Indonesia and the Philippines.

Investment markets were relieved when Japan become one of the first ‘big trade’ tariff deals out of the blocks - with the country agreeing to a deal of 15% tariffs (a significant reduction from the original levy of 25% from 1 August).

Next was the turn of the EU. Following a round of golf at his luxury Turnberry resort in Scotland, President Trump shook hands with Ursula von der Leyen (President of the European Commission) for what she described as “…a huge deal". This included 15% tariffs on goods from Europe to the US (as opposed to the 30% original levy the region would have faced post the 1 August).

As part of their deals, both Japan and the EU agreed to invest in America.

China, on the other hand, has agreed a ‘preliminary pact’ with President Trump - described as a ‘pause in steeper tariffs until 12 August’. Considering the huge amount of goods that China exports across the globe, a deal is crucial to keep world trade moving and global inflation potentially down.

Equity markets enjoy a resurgence

Despite the background ‘tariff’ noise, global equity markets continued to recover in June after the volatility seen in April and early May (following the announcement of those earlier reciprocal trade tariffs) – and it was something we had been closely monitoring. Tensions in the Middle East (between Israel and Iran) started to rise, causing the price of oil to spike higher. Towards the end of June, news of a ceasefire between the two countries began to seep through to markets with good effect, oil prices fell back. and equities continued to rise as evidenced by the FTSE 100 and the US’s Nasdaq reaching record highs.

July was the month that saw cease fire talks on the Israel/Hamas war resume between President Trump and President Netanyahu. This has proved inconclusive so far. However, it was pleasing to see that towards the end of the month, Israel announced it will pause military operations for 10 hours a day in parts of Gaza to allow aid to be distributed to what is now an unprecedented humanitarian crisis.

In a surprise move in the month, President Trump issued another deadline. This time, his attention turned to President Putin. Increasingly fed up with Russia’s lack of desire to end the war in Ukraine, the US President threatened the Russian leader with sanctions on both Russia and the buyers of its exports, unless progress is made within 50 days (later changed to 10-12 days from 28 July). Meanwhile, President Trump was showing his solidarity for Ukraine by pledging to send ‘top-of-the-line’ weapons to the country via Nato.

Back in the US, the President had ‘other’ pressing issues to deal with on home soil. In June, the House of Representatives narrowly passed his ‘Big Beautiful Bill’ – a wide-ranging multi-trillion tax breaks package. After passing the Senate, the bill was fully signed into law on 4 July, containing many highly publicised issues - one being that it will add an estimated $3.3 trillion to US federal deficits over the next 10 years. The big tax giveaways in this bill will be partially paid for by the revenue America receives on goods imported into the country, thanks to those tariffs.

Further mayhem for bond investors?

The effects of the bill could potentially create a global bond market crisis if US Government bond investors demand even higher interest rates to compensate for the extra risk to government finances of those tax giveaways (mentioned earlier).

So far, the US bond market has held its own, helped by having already built in higher interest rates earlier in the year, including the aggressive moves seen in April (post those initial tariff announcements). Bond investors will also not have forgotten that Moody’s (the US corporation that rates creditworthiness of companies and governments) downgraded America’s credit rating in May after expressing concern over the government’s ability to pay back its debt.

UK upheaval persists

The word ‘deficit’ has certainly been on the mind of the UK government, too. Prime Minister Starmer has been under much scrutiny for his controversial welfare reform plan. By early July, after pressure from ministers, it eventually won a vote in parliament, albeit a ‘watered down’ version of it. A move seen by the UK gilt market as a further undermining of the government’s fiscal position. This comes hot off the back of the government’s U-turn in May on the winter fuel payment cuts with speculation remaining on who will now qualify for the payment. And there is more for Chancellor Rachel Reeves to mull over as she plans her now critical Autumn budget, where she may well have to consider tax rises.

Lack of growth and rising inflation

What will also be on the government’s mind is the UK’s persistent lack of growth (it provisionally shrank by 0.1% in May), coupled with the recent resurgence in inflation (it rose to 3.6% in the year to June). Even though UK inflation is getting further away from the Bank of England’s 2% target, there is an expectation that interest rates will still be cut in August.

As we await to see the full scale of what will happen with trade tariff negotiations, if President Trump really can make a breakthrough with President Putin, and if peace can be brokered in the Middle East, our Investments Team has been getting ‘to the heart’ of how businesses are feeling right now. Our Fund Managers and Investment Analysts are currently navigating their way through quarter two earnings season, using their expertise to analyse company results. This important fact find will help us in our decision making when looking for investment opportunities to support the potential long-term returns generated by our managed funds.