Strong corporate earnings and improving economic signals supported global equity markets throughout August, despite continued uncertainty surrounding inflation, interest rates and geopolitical tensions in the Middle East.
US and European markets reached record highs, while the FTSE 100 remained close to its own record levels. However, markets experienced some volatility towards the end of the month as investors assessed the outlook for inflation, energy prices and future interest rate decisions.
US: Strong earnings support record highs
US equity markets reached record highs during August, supported by strong technology company earnings and continued optimism around artificial intelligence.
Gains moderated later in the month following comments from the US Federal Reserve, which raised concerns about the outlook for inflation and interest rates.
US inflation eased slightly from 3.5% in June to 3.4% in July. However, petrol prices remained elevated at an average of around $4 per gallon, more than $0.85 higher than a year earlier.
Federal Reserve Chair Kevin Warsh suggested that persistently high inflation could require further interest rate rises.
The labour market delivered a weaker signal. US employers cut 23,000 jobs in July, significantly below economists’ expectations for 80,000 new jobs. Unemployment remained unchanged at 4.1%.
Consumer sentiment offered a more positive picture, rising to a five-month high, although renewed tensions in the Middle East and higher petrol prices could put further pressure on household confidence.
UK: Improving economic signals support confidence
The UK economy showed some encouraging signs during August.
Consumer confidence reached a two-year high, with households becoming more confident about making major purchases. Private sector output also grew at its fastest pace for four months, with stronger services activity offsetting slower manufacturing growth.
Inflation increased to 2.9% in July as higher energy costs placed additional pressure on households. This followed a 13% increase in Ofgem’s energy price cap, raising the average annual gas and electricity bill by £221 to £1,862.
Wage growth slowed during June, while vacancies fell to a five-year low of 707,000 in the three months to July. Unemployment remained unchanged at 4.9%.
Despite some continuing pressures, improving consumer confidence and stronger private sector activity provided more encouraging signals for the UK economic outlook.
Europe: Business activity rebounds
European equity markets also reached record highs during August, supported by strong second-quarter corporate earnings and broad gains across different sectors.
Eurozone business activity improved, helped by stronger manufacturing. Germany was a notable contributor, with manufacturing output increasing at its fastest rate since January 2022.
Employment across the region also increased for the first time in 2026, while inflationary pressures continued to ease.
The eurozone economy expanded by 0.4% in the second quarter, despite continued volatility across energy markets resulting from the US-Iran conflict.
Overall, the combination of stronger business activity, improving employment and resilient corporate earnings helped support European markets.
China: Economic momentum slows
China’s economy lost momentum during July as weaker industrial production and retail spending increased pressure on policymakers to support economic growth.
Factory output increased 4.5% year on year, slowing from 5.3% in June. Retail sales growth also weakened from 1% to just 0.6%.
Weak consumer demand and falling investment remain significant challenges, while second-quarter economic growth of 4.4% represented one of China’s lowest readings in decades.
China continues to rely heavily on exports and industrial production as subdued consumer spending and the ongoing property downturn weigh on domestic economic activity.
Markets: Global equities continue to move higher
Despite periods of heightened uncertainty, global stock markets have continued to make strong gains during 2026.
The chart included in the September update shows the S&P 500, Euro Stoxx 50 and FTSE 100 all significantly above their levels at the beginning of the year, although each has experienced periods of volatility along the way.