Q3 2025 Market commentary

Equity markets posted positive returns during Q3 as trade tensions eased, the global AI boom continued, and consumer confidence and spending increased. Investors anticipating a more acute tariff-related economic slowdown were buoyed by a raft of international trade agreements struck by the US through August and the scaling back of tariff rates with major trading partners including Japan and the EU. US rhetoric towards China took a more positive turn after direct trade talks and an agreement to settle the countries’ longstanding spat over the majority ownership of social media giant TikTok. The US-China trade truce, the impact of stimulus measures in China, and an increase in global demand for Asian-made semiconductors all contributed to emerging market equities outperforming their developed market counterparts over the quarter. Digital assets, credit and commodities were among the key growth drivers – gold was a notable standout with prices per ounce passing $4,000 for the first time. 

Optimism at the start of Q4 was tempered by October’s US government shutdown, the continuing impasse in the Senate, and the wider implications of the collapse and re-establishment of the Lecornu government in France. At the time of writing this document, we are still awaiting  a supreme court ruling on the legality of the Trump administration’s tariffs,  which could see around $165 billion in duties refunded to importers. 

US equities accelerated through Q3, bucking the so-called ‘September Effect’ market trend that usually serves to reduce aggregate returns. The Federal Reserve voted to cut interest rates for the first time in 2025, increasing investor interest in risk assets and reducing borrowing costs for smaller companies – a surge in small-cap investing saw the Russell 2000 index reach a record high, topping the 2,500-point mark for the first time in its history. The Fed’s action fuelled speculation that more rate cuts could be announced before the end of the year and investor sentiment was further buoyed by strong earnings reports and a surge in productivity across IT and communications services. Large-cap outperformance was narrowly focused once again, with Alphabet and Tesla leading the way whilst Microsoft was more muted. Elsewhere, the energy sector was a notable underperformer, driven largely by falling oil prices, however alternative energy rebounded somewhat. US GDP was revised up for Q2, whilst economic activity through Q3 was propelled by benign core inflation and a significant increase in consumer spending. 

European equities saw gains over the quarter, though not to the same level as their global counterparts. Regional performance was driven principally by the healthcare and financial sectors. The services sector expanded across the bloc’s major economies with the notable exception of France which struggled to gain traction in the face of continued political uncertainty and the failure of successive governments to win parliamentary support for budget proposals. Economic concerns also spiked in Germany where revised Q2 GDP figures indicated a sharper-than-expected contraction. Stable core inflation was reflected by the central bank’s decision to hold its 2% base rate throughout the quarter.

UK equities performed strongly over the quarter with the FTSE 100 passing the 9,000-point mark for the first time in its history. The milestone coincided with a marked increase in the number of companies looking to list on the London Stock Exchange. Healthcare was a key contributor thanks to positive news from the US regarding drug pricing. Domestic IT and communications sectors benefitted from the global uptake in AI development. Defence and Tobacco sectors, where Greenbank clients have limited exposure for ethical reasons, also performed well this quarter. Economic data indicated that the wider economy stagnated at the beginning of Q3, highlighting the challenges the government faces to boost growth and improve public finances in its November budget. Despite core inflation remaining sticky at 3.8%, driven by food, energy and regulated utility costs, the central bank voted by a narrow majority in August to reduce its base rate to 4% – the lowest level since February 2023.

Leading supermarkets welcome government’s introduction of healthy food standards and mandatory reporting

Tesco and Sainsbury’s were among major retailers to welcome new healthy food and reporting standards included in the government’s “Fit for the future” 10-year national health plan. The plan’s “sickness to prevention” objective encourages supermarkets and other food retailers to reformulate products and recipes, alter shop layouts, and include healthy food options in discount and loyalty schemes. It will target junk food advertising aimed at youngsters, drive product reformulation in the soft drinks industry, and ban the sale of high-caffeine energy drinks to under-16s. The plan also introduces the world’s first mandatory healthy food sales reporting requirement for major retailers, something Greenbank had been encouraging the government to introduce since 2021.

Mandatory sales reporting is a crucial first step towards improving the country’s relationship with food. The UK has the third-highest rate of adult obesity in Europe and rates have doubled since the 1990s, especially among children. The cost to the NHS is £11.4 billion a year, three times the annual budget for ambulance services. Public health experts estimate that cutting daily calorie intakes by just 50 calories would lift 2 million adults and 340,000 children out of obesity.

Government energy statistics confirm record use of renewables for UK electricity generation in 2024

Renewable energy technologies generated 50.4% of the UK’s electricity in 2024, a 4% increase on the previous year and a new overall record. Fossil fuel generation fell to 31.8% in the same period, marked by favourable weather conditions and the closure of the country’s last coal-fired power plant. Onshore and offshore wind was the UK’s predominant clean power source in 2024, accounting for 58% of renewables-generated electricity. Energy production spikes also occurred in the solar and nuclear sectors which accounted for 20% of electricity generation in 2024. Production levels of domestic oil and gas were estimated to be 75% below their 1999 peaks and over 30% below pre-pandemic rates.

The UK’s progress in clean energy generation looked set to continue through 2025 and beyond. The rapid development of solar infrastructure and prolonged good weather across the UK has resulted in record capacity, further convincing the government to upscale its investment in solar technologies to 2030 – solar energy generation in August was 30% higher than in August 2024, enough to power more than 5 million homes for a year. Elsewhere, the UK’s largest battery energy storage system (BESS) began delivering electricity to the grid supporting London and the Southeast. Statera Energy’s Thurrock Storage facility was connected to the National Grid’s substation at Tilbury, providing 300MW of reserve capacity flexible storage – the site can power up to 680,000 homes during shortfalls in renewable energy provision.

Global High Seas Treaty passes ratification threshold to come into force

The global High Seas Treaty will enter into force on 17 January 2026 after securing the required 60 ratifications from UN member states. Morocco and Sierra Leone became the 60th and 61st countries to ratify the Treaty in September, triggering a 120-day timeline for the Treaty to be officially recognised and implemented and paving the way for the inaugural Ocean Conference of Parties (Ocean COP1) expected in 2026. The Treaty establishes legally binding rules regarding the conservation and sustainable use of marine biodiversity in international waters, the creation and expansion of marine protected areas (MPA), and the equitable sharing of benefits from marine genetic resources.

Less than 1% of oceans are fully or highly protected and almost 10% of marine species are under threat of extinction. Oceans absorb around 90% of the excess heat from worldwide carbon emissions, produce up to 80% of the world’s oxygen, and contribute significantly to global economies. Around two-thirds of ocean coverage lies outside any sovereign jurisdiction and the lack of legal oversight increases the risks of marine resource mismanagement and overexploitation. Regional agreements and conventions provide limited scope for coordinated marine conservation or for the fair and equitable distribution of natural resources. The High Seas Treaty aims to fill critical regulatory gaps, complement and expand national legislative efforts, and begin the implementation of global conservation measures. The Treaty represents an historic moment in global ocean governance, but much still depends on the scale and speed of international cooperation through negotiations like Ocean COP1.

It also comes as the Potsdam Institute for Climate Impact Research’s updated Planetary Health Check report confirmed that ocean acidification had become the seventh of nine critical planetary life support system boundaries to be breached, indicating a heightened risk of systemic collapse. Only two ecological systems now remain within their sustainable boundaries: atmospheric aerosol loading and stratospheric ozone depletion.