As summer drew to a close, financial markets in August remained buoyant despite an increasingly turbulent policy backdrop. Equities advanced across most regions, with U.S. indices hitting fresh highs and Chinese stocks rallying strongly on a shift in household investment trends. Yet beneath the surface, currency movements, political interventions, and diverging central bank actions continue to shape outcomes for investors. From the Federal Reserve’s looming rate decision and President Trump’s latest confrontations with policymakers, to persistent fiscal concerns in Europe and the ongoing impact of tariffs, our Chief Investment Officer, Jeff Brummette, covers how the months ahead look set to test both market resilience and investor confidence.
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Equity markets continued to climb in August, ignoring President Trump’s continued criticism of the U.S. Federal Reserve and the imposition of broad tariffs on many of United States key trading partners.
Currency fluctuations continue to matter as a modest decline in the dollar versus the pound left UK investors with flat returns on their U.S. holdings, despite U.S. markets once again reaching new all-time highs. Meanwhile, Chinese equities had a very strong month, buoyed by a noticeable shift among households to reallocate some of their savings from real estate into equities – a trend that appears to be actively encouraged by the authorities.
Equity Markets
Source: Bloomberg
Fixed Income Markets
Source: Bloomberg
Alternative Investments Markets
Source: Bloomberg
Dollar Resumes Its Path Of Losses in August
Source: Bloomberg
Fixed income delivered mixed performance in August. In the U.S., bonds gained as the front end of the market rallied off weak labour data, while the UK and European markets saw yields drift higher despite a 25-basis point rate cut by the Bank of England (BoE).
Major central banks remain confident that inflation will meet their 2% targets – the European Central Bank (ECB) is already there – in the near future which should allow further interest cuts.
The U.S. Federal Reserve (Fed) has strongly signalled they will be lowering rates at their September meeting. In a recent speech at the Kansas City Fed’s annual retreat in Jackson Hole, Fed Chair Powell warned that “downside risks to employment are rising. And if those risks materialise, they can do so quickly in the form of sharply higher layoffs and rising unemployment.”
Even so, a September rate cut may not be enough to persuade President Trump to stop pressuring the Fed for more aggressive easing. He has given up on removing Chair Powell and has decided to “fire” Fed Governor Lisa Cook (a Biden appointee) claiming some alleged misstatements on mortgage applications are cause for her termination. She has refused to accept her termination and the matter is now in Federal court. He has already appointed his chief economic adviser, Stephen Miran, to the Fed Board, pending Senate approval. Mr Miran is a strong advocate for lower rates and a weaker U.S. dollar.
Globally, the generally accommodative stance by central banks has been supportive for equity markets. However, it has done little to help the longer end of government bond markets. Persistent concerns about ever growing fiscal deficits, despite positive economic growth, are prompting investors to demand a greater term premium for owning long maturities.
France provides a clear example. The government’s failure to pass a budget has deepened political and fiscal uncertainty. As the chart below illustrates, inflation in France has steadily declined, leading the ECB to cut rates. Yet French ten-year yields have risen since last year. A similar trend is visible in the UK, where poor inflation dynamics and concerns regarding government finances have added further upward pressure on long-term yields.
French Inflation, Ten-Year OAT Yield and ECB Policy Rate
Source: Bloomberg Finance L.P.
UK Inflation, Ten-Year Gilt Yield and BOE Base Rate
Source: Bloomberg Finance L.P.
Gold continues to climb as markets remain sceptical that inflation is fully under control. The rally may also reflect unease over President Trump’s continued attempts to change the make-up of the leadership of the Fed. His stated goal is to have a majority of the Fed’s Board of Governors beholden to him, giving him direct influence over monetary policy. Such control would also give President Trump influence in the selection of the Fed’s regional bank Presidents. This would allow him to affect the make-up of the Federal Open Market Committee – the body that makes interest rate decisions. Concerns about these developments are contributing to continuing weakness in the U.S. dollar.
At the same time, markets are still struggling with how to measure the impact of Trump’s tariffs. Inflationary effects may only now be beginning to show up in consumer prices. With tariff rates settling around 15-20%, the drag is material. Tariff revenues are running at an annualised pace of approximately $400 billion – about 1.5% of U.S. GDP – and equivalent to a significant tax take. While some businesses absorbed the cost or relied on inventory stockpiling in in the first part of the year, second-quarter earnings revealed the pressure many firms are under to avoid raising prices. Major U.S. retailers are hinting that price hikes are likely, though early signs suggest consumers may be pushing back.
The legal landscape is adding further complexity. The Federal Circuit Court of Appeals recently upheld a lower court ruling blocking the administration’s use of the International Economic Emergency Powers Act to impose broad tariffs. The Trump administration has appealed to the Supreme Court, which is expected to hear the case this fall. Until then, the tariffs remain in effect. Meanwhile, trade deals with China, Canada, and Mexico remain unresolved.
Against this backdrop, we maintain an overweight stance in non-U.S. markets, where valuations and fundamentals appear more attractive. Within equities, we remain positive on the European defence sector, financials, utilities, mining and large-cap Chinese companies. In fixed income, we continue to avoid long duration bonds, keeping all our holdings below ten years in maturity.
Looking ahead to the final four months of the year, we will be closely monitoring several developments:
Is the U.S. labour market at risk of slowing significantly, and will the Fed ease aggressively in response?
Will Trump’s tariffs produce a significant move up in inflation?
Can Trump succeed in reshaping Fed leadership, and at what cost to the Fed’s credibility?
Are major government bond markets at risk of a “Liz Truss” moment as fiscal deficits keep widening?
Will Europe continue to support Ukraine and boost their defence spending as promised?
Does the surge in AI-related capital expenditure have the momentum to drive higher earnings and sustain gains for leading tech stocks?
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Hear more from the Oakglen experts
Our investment team continue to provide interesting and informative content to help keep you in the loop on recent global news and market trends. See below for some key highlights from around the world which some of the investment management team have recently covered:
Read more:
- August 2025 Investment Summary
Jeff Brummette, Chief Investment Officer
- US Tariffs: Here to stay?
Jeff Brummette, Chief Investment Officer
- H1 2025: Discretionary Investment Management Service Update
Myles Renouf, Senior Investment Manager
You can read other articles from the team on our News & Insights page.
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