CIM Market Update - October 2025

The Fed starts to ease

·  Fed cuts rates by 0.25% as US employment weakens and tariff-driven inflation persists.

·  UK gilt yields hit 27-year highs amid fiscal worries ahead of Rachel Reeves’ November Budget.

·  Angela Rayner resigns, prompting cabinet reshuffle and renewed pressure on Keir Starmer’s leadership.

·  Labour seeks to rebuild business confidence through new “Budget board” linking ministers with the Treasury.

·  Andy Burnham launches leadership challenge, proposing renationalisation and higher taxes for the wealthy.

·  Equities advance on optimism over rate cuts. Emerging market equities lead.

September was another positive month for most asset markets, supported by improving sentiment and growing confidence that global central banks are moving towards a more accommodative policy stance. The key event during the month was the U.S. Federal Reserve’s decision to cut interest rates for the first time this year, lowering the federal funds rate by 25 basis points. The move had been widely anticipated but was nevertheless well received by investors, as it signalled the likely start of a gradual easing cycle. Policymakers noted that while the economy remains resilient, growth momentum has softened and inflation pressures have moderated from their earlier peaks.

The Fed’s action set a supportive tone across global markets. Equities generally advanced, bond yields eased, and the U.S. dollar weakened modestly as investors reassessed the interest rate outlook. Economic data remained mixed, with indicators pointing to slower but still positive growth. Labour market conditions in the United States showed some signs of cooling, while consumer spending and corporate investment remained relatively robust.

Emerging markets outperformed developed markets over the month. Investor sentiment towards China improved meaningfully, helped by further signs of policy support for key industries such as semiconductors, and by a more constructive tone in trade discussions with the United States. Chinese technology and consumer-related companies led the rally, and broader Asian equity markets also benefited. Elsewhere, performance in Latin America was mixed, with Mexican equities extending their recent strength while Brazil was more subdued.

In developed markets, U.S. equities continued to perform well, led once again by large technology and communication services companies. The S&P 500 posted a gain of around 4 per cent in sterling terms, taking its recovery since April to nearly 30 per cent. Corporate earnings results for the third quarter generally exceeded expectations, although a significant portion of the market’s gains this year has been driven by rising valuations rather than earnings growth alone. European and Japanese equities also registered positive returns, helped by resilient corporate results and a more stable macroeconomic backdrop.

Bond markets were firmer as yields declined modestly through September. Investors increasingly priced in the prospect of additional rate cuts from the Federal Reserve and potentially from other central banks later in the year. Softer inflation data and signs of weaker employment growth supported that view. Longer-dated yields remained elevated, however, reflecting persistent concerns about fiscal deficits and the potential impact of higher government borrowing.

In the UK, sentiment remained particularly fragile. UK Gilt yields climbed to their highest levels in nearly three decades as investors continued to question the sustainability of the country’s fiscal position. The tax burden, now approaching 37% of GDP, and lacklustre growth expectations have left the UK looking unattractive to bond buyers. The yield spike underscored the challenge facing Chancellor Rachel Reeves ahead of her newly announced 26 November Budget.

Commodities presented a mixed picture. Oil prices were broadly stable, balancing concerns over slowing demand with ongoing supply constraints. Gold reached new highs during the month, supported by lower real yields and continued demand from investors seeking a hedge against uncertainty.

Looking ahead, the global economy continues to demonstrate resilience, even as growth moderates from the strong pace seen earlier in the cycle. Inflation trends are broadly improving, and the shift towards easier monetary policy should help sustain activity into next year. While risks remain, from geopolitical tensions to the potential for renewed inflation pressures, the overall environment for diversified portfolios remains constructive. A combination of steady global growth, easing financial conditions, and a broadening of market leadership beyond the U.S. technology sector provides reasons for cautious optimism as we enter the final quarter of 2025.