The Davy Digest - 25th August 2025

US equities rallied on Friday to finish modestly higher for the week. Investors have started to worry that the AI hype could be overdone, after a study by MIT warned that 95% of the companies polled had not seen returns on generative AI investments. The headline event of the week was on Friday at Jackson Hole where Jerome Powell stated that the balance of risks appears to be shifting in ways that may warrant adjusting the central bank’s policy stance. Equities reacted positively to the speech, with markets now expecting two rate cuts before year-end. European equities outperformed for the week. The Eurozone economy’s expansionary sentiment continued with the Purchasing Managers Index (PMI) rising to 51.1 in August from 50.9 in July, the third consecutive monthly rise. In the UK, inflation came in higher than expected at 3.8% for July, pushed higher by airfares and food prices. S&P Global’s UK Composite PMI increased to 53.0 from 51.5 in July, mainly due to a rebound in the services sector. Finally, in Japan, headline CPI eased to 3.1% in July from 3.3% in June.

Last week's highlights

	FOMC Minutes (20/08) -  Officials at July meeting worried about labour market & inflation, most agreed it was too soon to lower rates.  Chair Powell’s Jackson Hole closing speech (22/08) - Powell stated that the balance of risks appears to be shifting in ways that may warrant adjusting the central bank’s policy stance.
	Eurozone HCOB Composite PMI (21/08) -  Rose to 51.1 in August from 50.9 in July, the third consecutive monthly improvement and highest reading since May 2024.
	UK Inflation (CPI) (20/08) - Rose by 3.8% YoY, driven by air fares & food. S&P Global Composite PMI (21/08) – Increased to 53.0 from 51.5 in July, mainly due to a rebound in the services sector. UK Retail Sales (22/08) – Delayed due to data quality concerns.
	Japan Inflation Rate (22/08) - Headline CPI eased to 3.1% in July from 3.3% in June.

Looking ahead to this week, investors will receive data on consumer confidence and durable goods orders in the US. Consumption in the US has been holding up well despite slowing job growth. In the Eurozone, retail sales and inflation data will be released. European investors will also be on the lookout for further developments on the Russia/Ukraine peace deal. In the UK, the Nationwide house price index is due out. India GDP growth figures and Japan consumer confidence are set to be released on Friday.

What's on the radar

	Durable Goods Orders (26/08) Conference Board Consumer Confidence (26/08)
	Germany Ifo Business Climate Index (25/08) Eurozone Retail Sales (28/08) Eurozone Inflation (29/08)
	UK Nationwide House Prices (29/08)
	India GDP growth (29/08) Japan Consumer Confidence (29/08)

Chart of the moment - His Royal Highness, UK Inflation

Source: Bloomberg as of 21/08/2025

• UK inflation came in higher than expected at 3.8% for July, mostly due to rising airfares and food prices. 
• This means inflation is at its highest level since January 2024 and well above the Bank of England's (BoE) target rate of 2%. 
• The inflation report is a setback for Chancellor Reeves as she continues to battle sluggish economic growth and resurgent inflation. 
• The report may make the BoE hesitant to cut rates further this year - changes in the UK labour market will be key.
• Or, will the Bank of England take on the new policy of the Fed in the US, and increase their tolerance for inflation running higher whilst ensuring sluggish growth is not allowed to deteriorate?
   

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