Global Growth Holds, China Slows

Transcript

Hi and welcome to the market weekend review for the week ending 22nd of August 2025. I'm Alex Kusley. I'm a senior portfolio manager based out of Sydney. And there's three things to really go through this week. I think the first is on the global economy. We got the flash PMIs. We'll go through that. The second is what is happening in China. We got the latest data for the month of July. And then finally, what is going on in equity markets uh and what is happening with Jackson Hole. So if we start with the global economy, so this week we got the flash PMIs or the purchasing manager indices for the US, the UK, Europe and Japan and generally they were a bit better than expected. So we've seen a bit of a pickup um relative to what expectations had been and that was pretty broad-based across regions. So the global economy there are some headwinds around tariffs but broadly those numbers were a bit better than expected. In converse though, uh we got the latest numbers out of China and the general story there was quite soft. So we got the industrial production, retail sales and fixed asset investment last week on Friday. Uh and pretty much a miss across all of them and particularly the retail sales side. Uh the consumer is still very cautious and is not spending a great deal. Uh there there is a number of policies that have been announced uh from the Chinese government around potential consumer loan subsidies. Um those things are we think are are fairly minor in terms of the impact they will have and we're still looking at this subtrend growth uh for China over the next 12 months. Uh on the equity markets so we saw US equities this week we're recording this as of Thursday close. They were off a little bit um fairly modest uh but what we've seen is a broadening out uh of performance. So we've seen this week uh equal weight S&P 500 has outperformed lot um the market cap weighted. So you know the the median company has been outperforming the market cap. We've seen um Russell 2000 so small cap has outperformed large cap and even so non- US developed markets have outperformed. So that broadening out that people have been talking about and we are broadly positioned for uh we saw a glimpse of that this week and uh you know I think there's still some re room for that to continue to run. Uh the final thing on Jackson Hole. So we have the big economic central bank um conference this week at Jackson Hole. The who's who of central bankers will be there and the big focus is Jerome P's speech which will be on Friday US time. Uh we don't expect a huge amount to come from that in terms of direct guidance for what is going to happen in September at the Fed meeting, but we think that more broadly September is likely as an interest rate cut. Uh there's a couple of the reasons the economy is holding up but is still cooling. We see clear signs of that. We saw the payrolls report last month uh that saw a meaningful surprise to the downside. Um and the other thing that's really important to note is the Fed is starting from a point of restrictive policy. So they are currently putting their foot on the brake on the economy. Uh and so over the next 12 months, given that and given the fact that the economy is in the slowdown phase, uh we think it's appropriate for them to know bring interest rates back down to a more normal level, which we estimate is about 3.25% and so we think September uh is quite likely for them to restart that interest rate cutting cycle uh and gradually move back down towards there. So with that, really appreciate your time. Thanks for listening and we look forward to speaking to you again soon. Bye. Hi, I'm Sophie Antaly, head of portfolio and business consulting at Russell Investments. If you liked what you just saw and heard, consider subscribing to our YouTube channel or check us out on LinkedIn. Thanks for tuning in.

Key Takeaways

Global PMI surveys top expectations
Market rally broadens
September Fed cut looks likely

On this week’s edition of Market Week in Review, Director and Senior Portfolio Manager Alex Cousley explained what the latest data suggests about the health of the global economy. He also unpacked recent stock-market performance and discussed the likelihood of a U.S. Federal Reserve (Fed) rate cut next month.

Growth Divide

Cousley began with a look at preliminary PMI (purchasing managers’ index) data from key economic regions around the globe. The numbers from the U.S., UK, eurozone and Japan were generally better than expected. “This suggests much of the global economy is still in decent shape despite some headwinds from tariffs,” he said.

China’s economy, however, continues to struggle, Cousley noted. He said recently released data on retail sales, industrial output and fixed-asset investment all fell short of consensus expectations. Retail sales in particular were disappointing, showing Chinese consumers are still cautious on spending, Cousley noted.

The Chinese government has unveiled some new policies to boost spending, including consumer loan subsidies, but Cousley said he expects the impacts of these to be minor. “Overall, we still think growth in China is likely to stay below average over the next 12 months,” he stated.

Rally Widens

Shifting to the stock market, Cousley said the rally has started to broaden beyond mega-cap tech stocks in the past week. As proof, he noted the median S&P 500 company recently outperformed the market-cap-weighted S&P 500 Index, while the Russell 2000 Index of small-cap stocks bested the Russell 1000 Index of large-cap stocks.

“I think there’s still more room for this to run in the weeks ahead,” Cousley remarked.

September Shift

Turning to the Fed, Cousley noted all eyes are on Jackson Hole, Wyoming, where the central bank’s annual meeting concludes Saturday. While Chair Jerome Powell is unlikely to address specifics about a potential rate cut in September, Cousley said he expects the Fed to begin lowering borrowing costs next month.

Why? “The U.S. economy is still holding up, but it’s cooling off. July’s employment report is a clear sign of this,” he explained. In addition, the Fed’s current monetary policy is restrictive, designed to slow the economy, Cousley said.

With this in mind, September seems like the appropriate time for the central bank to restart the rate-cutting cycle, he remarked. “Ultimately, over the next 12 months, the Fed is likely to gradually bring rates down to a more neutral level, which we estimate is around 3.25%,” Cousley concluded.

Watch

Listen