We examine the markets daily, and our monthly update is a selection of key global stories explained through an investment lens.
Market headlines
Global equity markets reach all-time highs – US equities were boosted by a strong Q2 earnings season, with more than 80% of companies beating expectations. UK equities reached an all-time high, benefiting from comparatively attractive valuations relative to international peers.
Rising long bond yields in major economies – Global bond yields rose across major economies, reflecting growing inflationary pressures and concerns over fiscal stability. There were notable rises in long-dated yields on US Treasuries, UK gilts and French government bonds.
The challenging geopolitical environment continues – Headlines during the month included escalating trade tensions and ongoing geopolitical negotiations. At the same time, economic data releases painted a mixed outlook.
Hopes rise for a US Federal Reserve (Fed) rate cut – A weaker than expected US jobs market report for July helped drive expectations for a US rate cut at the Fed’s September meeting, despite inflation remain above target.
The big topics
Escalating tariffs and their inflationary ripple effects.
Trade tensions dominated the early weeks of the month, with US President Trump’s announcements again driving market volatility. Tariffs escalated, with threats of increased rates on semiconductors and pharmaceuticals. Exemptions for US-based production boosted tech stocks like Nvidia, but broader impacts started to emerge in inflation data.
The US Consumer Price Index (CPI) report for July showed muted tariff effects initially, with headline at +2.7% year-on-year, but the Producer Price Index (PPI) surprised higher at +3.3% yearon-year. The US-China trade truce extension to November provided temporary relief, yet lagged effects on consumer prices and supply chains persisted. By month-end, these policies compounded uncertainty, contributing to rising bond yields and sector-specific pressures.
Resilient yet mixed economic data across major economies.
Economic indicators painted a resilient but uneven picture across regions. In the US, a surprisingly weak July jobs report and downward revisions to previous months’ reports fuelled slowdown fears. However, US Q2 Gross Domestic Product (GDP) growth was revised up to 3.3% annualised on strong investment and spending. The Purchasing Managers Index (PMI) beat forecasts, yet rising prices signalled persistent inflationary pressures.
The UK economy showed strength with June GDP growth at +0.4% month-on-month and upbeat PMIs, but Consumer Price Index (CPI) surprised at +3.8% year-on-year, driven by services. Europe’s data was also mixed. Euro area PMIs indicated recovery, but Germany’s Q2 GDP contraction deepened to -0.3%.
Geopolitical hopes amid Ukraine-Russia negotiations.
Geopolitical developments offered glimmers of optimism, particularly around potential Ukraine resolutions. Early signals of Russia-Ukraine peace talks helped ease pressure on oil prices. The mid-month Trump-Putin summit in Alaska, though yielding no immediate ceasefire, paved the way for multi-party discussions involving President Zelensky and European leaders. Proposals included territorial swaps, Europeanfunded purchases of US weapons and security guarantees.
While the Kremlin’s noncommittal responses tempered enthusiasm, President Zelensky welcomed progress towards a possible PutinZelensky meeting. These developments buoyed European equities, with the STOXX 600 hitting multi-month highs, but fading hopes by late August highlighted ongoing geopolitical risks.
Mounting concerns over central bank independence.
Political interference emerged as another risk, particularly in the US, where President Trump’s actions challenged monetary policy autonomy. Early in the month, his firing of the Bureau of Labor Statistics head over jobs data and speculation that he would replace Chair Powell with loyalists like Chris Waller added to market uncertainty.
This escalated with attempts to remove Governor Lisa Cook over alleged misconduct, prompting her lawsuit, and the separate appointment of Stephen Miran to the Board to replace a member who had resigned. Fed minutes revealed divided views on tariffs’ inflationary impact, with upside risks prioritised. These developments underscored how politics could undermine confidence in economic indicators and in monetary policies.
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