Focus on the Global Outlook - August 2025

Growth holds, risks linger

The big picture

• Global growth is positive, corporate profits are robust, inflation expectations allow rate cuts in the next year, geopolitical and trade war risk seems to be receding
• Risks linger and include the impacts of trade wars on consumer demand, corporate profit margins and inflation may be underestimated by markets

Implied US Fed funds rate %

Source: Bloomberg, W1M. As at 08.08.25

Implied UK base rate %

Source: Bloomberg, W1M. As at 08.08.25

Risks

Complacency regarding inflation?

Tariffs can and normally cause higher prices which, of course, negatively impact consumers, exporters, importers and potentially governments if bond yields rise in response to inflation.  Companies are normally unable to pass on all the cost impact of tariffs.  Consumers facing higher prices may seek higher wages. That may force companies to seek further price increases.   Pressure to increase interest rates can result. Markets do not seem to want to worry about these risks at the moment; that does not mean they won’t have to do so at some point.  The market is currently expecting a September US rate cut with core inflation above 3% and the last time that happened was in the very different scenario of the Gulf War in the early 1990s. A more negative scenario is inflation expectations could change the market mood, but for now markets are not worrying about inflation risks too much.

Complacency regarding tariff impacts on aggregate demand?

Tariffs are starting to be paid on exports to the US and, in just a couple of months, are already over $50bn in terms of revenue; this could mean around $300bn of tariff revenue in a year and that would be the equivalent of a 10% Federal tax increase. If the US were putting up taxes by that amount, markets would be concerned about the impact on aggregate demand in the economy. But, at the moment, market expectations regarding both GDP growth and corporate profits assumes a muddling through that will be, on balance, positive.

US imports average effective tariff %, 1790-2025 est.

Source: US Treasury, State of U.S. Tariffs: July 28, 2025 | The Budget Lab at Yale W1M. As at 06.08.25

US Customs Duties Revenues, US$ billion, 2010-2025 monthly

Source: US Treasury, State of U.S. Tariffs: July 28, 2025 | The Budget Lab at Yale W1M. As at 06.08.25

Currencies

Currencies can have short term impacts which reverse; dealing with sustained long-term trends is what matters most for investors. The pound has been trading in a range against the Euro since 2016 and is currently weakening but is around the middle of its long run range. US dollar weakness may be seen as desirable by some in the US administration if it is considered useful in reducing trade surpluses.  A weaker USD in a positive global growth scenario may be particularly supportive for emerging markets.

Euros per pounds (01.07.2016-current)

Source: Bloomberg, W1M. As at 08.08.25

Trade weighted US dollar (BBDXY)

Source: W1M, Bloomberg MSCI. As at 29.07.25

MSCI emerging markets currency index

Source: W1M, Bloomberg MSCI. As at 29.07.25

Japan

Japan remains a very interesting area for stock selection given some companies taking shareholder friendly actions, and being “improvers” in our analysis, as well as having strong products. Holdings such as Toyota Motor and Shin-Etsu Chemical continue to be very successful in businesses in their respective global sectors.

W1M is positively positioned in equities and real assets

Given global growth is solid, inflation expectations are benign and so interest rate cuts are expected in the US and UK over the next 18 months. Sentiment is not overly optimistic now, valuations are not unattractive in most parts of equity markets and company earnings have been resilient.  

Japanese corporate share buybacks 2013 – current in billions of Japanese Yen​

Source: Mizuho, Tokyo Stock Exchange. As at 03.04.25

August 2025 asset allocation positioning

Risk warning: The above should be used as a guide only. It is based on our current view of markets and is subject to change. As at 11.08.25​

Equities: have performed strongly leaving W1M positioning modestly overweight; we have observed a broadening of equity market leadership over the year to date as a whole, with a more value cyclical bias evident in the outperformance of industrials, financials and materials, which has favoured our positioning. We continue to believe that our global, active, high conviction investment approach will serve us well in these markets as proven in earnings season thus far and in our Global, European and Asian equity funds.

Fixed income: underweight over all but with a strong preference for government bonds over credit: W1M will continue to monitor forward employment and inflation indicators, with deterioration in either factor is likely to result in a more cautious stance within portfolios. Some risk of a material growth slowdown supports our overweight government bond positioning relative to corporate credit within fixed income portfolios.

Alternatives: overweight. W1M continues to favour real assets over absolute return strategies currently. Gold has done well and remains a sensible allocation in portfolios in our own view. The W1M Real Assets Fund offers attractive exposure to inflation-linked cash flows (75% of the portfolio has some inflation linkage) and themes such as the energy transition, power and utilities and digital infrastructure. Real asset valuations have adjusted to the rise in interest rates, while many share prices, particularly within the listed investment company sector, trade at a significant discount to Net Asset Value (NAV).

See: The W1M Investment Barometer – August 2025

To read our full Global Outlook document and hear insights directly from William Dinning, Chief Investment Officer, click  here.