FROM TRADE TARIFFS TO FED TENSIONS AS MARKETS NAVIGATE A TUMULTUOUS AUGUST
HIGHLIGHTS
- At the very start of August, markets took a wobble as the U.S. added just 73,000 jobs in July which was far below expectations (105K) and revised May and June figures dramatically lower by 258,000 positions combined. This shock was compounded by U.S. President Trump’s executive order unleashing tariffs of up to 41% on imports from countries like India, Canada, Taiwan, South Africa, Switzerland and others. Investors recoiled as global indices dipped, US Treasury yields fell and the pressure ramped up on the Federal Reserve to consider rate cuts.
- The major U.S. stock indices closed the month strongly. Although the S&P 500 slipped 0.6% to 6,460 on the final trading day, it nonetheless notched a solid 2% gain for August marking its fourth straight monthly advance. The Dow Jones and Nasdaq also gained, while the Russell 2000 outperformed with a monthly return of 7%. Despite the day’s volatility, year‑to‑date performance remained healthy across the board: S&P up 10.8%, Dow 8.3%, Nasdaq 11.6%, and Russell 6.7%.
- Investor jitters hit U.K. banking shares as rumours swirled about the government possibly slapping a windfall tax on bank profits to raise tax revenue for the UK. Major names like NatWest, Lloyds and Barclays collectively saw over £6 billion knocked off their market values.
- August witnessed a remarkable feat in U.S. markets: companies collectively repurchased over $1 trillion of their own shares faster than ever before. Giants like Apple, Alphabet and JPMorgan led the charge, with buybacks surging daily to around $4.4 billion.
EQUITY MARKETS
Global equity markets in August 2025 offered a mixed picture, with performance varying sharply by region. Asia was the clear standout, propelled by Chinese equities which staged a powerful rally. The Shanghai Shenzhen CSI 300 Index advanced by more than 10%, supported by fresh optimism around Beijing’s stimulus measures and signs of stabilising investor sentiment after months of volatility. Latin America also enjoyed a strong run, with Brazil’s Bovespa Index climbing around 6% on the back of resilient domestic demand and commodity-linked support. Canada and Indonesia were among other notable performers, gaining close to 5% and over 4% respectively, underscoring the relative strength of emerging markets during the month.
In developed markets, the United States once again took the lead, with all major indices posting firm gains. The S&P 500 and Dow Jones advanced between 3% and 4%, while the Nasdaq also delivered steady progress, helped by strong technology earnings. The Russell indices performed well too, reflecting strength across both large-and small-cap segments. Notably, the Magnificent 7 rose by nearly 2%, highlighting how investor appetite for mega-cap technology names continued to dominate market momentum. The robust U.S. performance stood in contrast to Europe, where equities struggled to gain the same traction.
Across the continent, returns were muted. Germany’s DAX and France’s CAC 40 ended the month slightly lower, weighed down by sluggish industrial activity and ongoing weakness in global trade. Broader benchmarks such as the Euro STOXX 50 and MSCI Europe managed only modest gains, while in the UK the picture was split. The FTSE 100 advanced marginally, supported by commodity exposure and global earnings strength, but the more domestically focused FTSE 250 slipped back into negative territory, reflecting persistent concerns over the local growth outlook. Meanwhile, peripheral European markets such as Portugal and Hungary saw only incremental gains, leaving Europe noticeably behind Asia and North America in terms of momentum.
Sector trends told a more detailed story. In the United States, materials and healthcare led the charge. Materials benefitted from sustained demand for metals and building products, while healthcare saw inflows into defensive names supported by positive earnings reports. Energy and communication services also performed well, with energy lifted by supply tightness and positioning despite volatile oil prices, and communication services buoyed by strength in big-tech platforms and the continued resilience of digital advertising. Financials and consumer discretionary stocks added breadth to the rally, with banks reporting solid earnings and retail and leisure names attracting strong flows. By contrast, utilities lagged as investors rotated away from defensives in anticipation of lower interest rates, while industrials struggled to make headway in light of sluggish trade flows.
In Europe, sector performance was far more uneven. Industrials and technology were the weakest, both falling more than 2% as export-driven manufacturers and electronics names bore the brunt of soft demand. On the other hand, energy stocks found support from stronger commodity prices, while consumer discretionary sectors rose over 3%, reflecting the resilience of household spending in certain markets. Healthcare also proved a stabiliser, delivering gains as investors sought defensive exposure amid the region’s weaker overall momentum.
In the corporate world, Nvidia delivered a standout second quarter, posting revenue of $46.7 billion (up 56% year-on-year) and showcasing exceptional demand for its Blackwell AI data centre platform, which grew sequentially by 17%. Profitability was robust, setting the stage for even stronger gross margin guidance heading into Q3. The board also authorised a further $60 billion in share repurchases, underlining confidence in capital returns. Caterpillar raised its tariff-related cost forecast to $1.5–1.8 billion, prompting a nearly 3% drop in its stock. Despite increased tariff pressures, its revenue outlook remained consistent at approximately $65 billion. Strong results for Dell’s AI server division drove the company to lift its revenue guidance to between $105–109 billion. AI server shipments are projected at $20 billion for the fiscal year. Yet, disappointments in the client solutions segment (particularly flat PC and monitor sales) resulted in a post-earnings 5% stock decline, suggesting the market had already priced high optimism into AI growth potential.
Vedanta’s proposed demerger ran into regulatory headwinds as Indian authorities raised concerns over undisclosed liabilities and inadequate disclosures. The hearing has been deferred to September with SEBI also issuing a compliance warning. Separately, Vedanta declared a second interim dividend (record date 27 August) and its subsidiary Hindustan Zinc revealed plans to invest ₹3,823 crore in a massive tailing reprocessing facility underscoring continued focus on sustainability and shareholder returns.
Energy giant ExxonMobil delivered robust Q2 earnings of US$7.1 billion, supported by US$11.5 billion in operational cash flow and US$5.4 billion in free cash flow. The company returned a formidable US$9.2 billion to shareholders via dividends and buybacks, on track for US$20 billion in total stock repurchases this year. New projects, including upgrades in Singapore and renewable diesel facilities, underscore its continued investment in both traditional and lower‑carbon infrastructure.
In a notable strategic move, the U.S. government acquired a 9.9 % stake in Intel at US$20.47 per share, securing a five-year warrant to purchase an additional 5% under specific conditions. The deal supports American semiconductor manufacturing and marks a rare direct government investment in a tech firm without governance rights.
CREDIT MARKETS
Fixed income markets in August 2025 reflected a clear divergence between regions and maturities, with developed market government bonds under pressure while selective areas of U.S. credit and emerging market debt offered pockets of resilience. Government bonds in advanced economies endured a challenging month. UK gilts were particularly weak, with long-dated maturities falling close to 3%, weighed down by higher yields and a fading bid for safe-haven assets. Eurozone sovereign debt also registered meaningful losses, as investors priced in stickier inflation and a slower path to monetary easing by the European Central Bank. These dynamics left European fixed income notably underperforming its U.S. counterparts.
Emerging market investment grade credit also struggled, especially in Europe. Euro-denominated corporate bonds declined by nearly 1%, while Indian government debt slipped as tighter global liquidity and currency volatility deterred investors from adding risk. This marked a continuation of the cautious stance towards investment-grade emerging market debt seen earlier in the year. By contrast, the U.S. Treasury curve told a more nuanced story. The short end of the curve proved resilient, with one-to-three-year maturities and Treasury bills posting modest gains of over 1%. Investors favoured front-end paper for its defensive carry and policy stability, reinforcing demand for duration-insensitive assets. Longer-dated Treasuries bucked the global trend, rising more than 1.5% as dovish signals from the Federal Reserve revived expectations for rate cuts later in 2025. Investment grade U.S. corporates also benefitted, delivering healthy returns alongside government paper.
High yield markets delivered mixed outcomes, shaped largely by credit quality. Riskier CCC-rated bonds fell nearly 2%, reflecting heightened default fears in a more uncertain macro environment. In contrast, BB and single-B European paper managed small positive returns, while U.S. high yield debt outperformed with gains of 1–1.5%, supported by strong corporate earnings and healthy investor inflows. Emerging market high yield stood out as a bright spot. The asset class gained nearly 1.5% during the month as risk appetite remained intact. A stabilising backdrop in several large sovereign issuers, combined with steady inflows from global investors seeking yield, helped lift performance. Notably, volatility in this segment was lower than in other parts of fixed income, reinforcing its appeal in an otherwise unsettled market.
CENTRAL BANKING, THE ECONOMY AND GEO-POLITICS
Central banking developments during August 2025 were dominated by shifting expectations for monetary policy and the political storm surrounding the independence of the U.S. Federal Reserve. Softer economic data, including weaker employment figures and subdued inflation readings, encouraged markets to increase their bets on multiple rate cuts before the year’s end. While the Federal Reserve itself remained measured in its communications, the dovish tilt was enough to spark renewed demand for Treasuries and added pressure on the U.S. dollar. However, investor confidence was unsettled towards the end of the month after an unprecedented move from the White House to remove a sitting Fed governor. This act raised profound concerns about political interference in central banking, rattling currency markets and prompting debate about the long-term credibility of U.S. monetary policy.
In Europe, monetary authorities faced a different set of challenges. While inflation showed signs of moderating, it remained sticky enough to complicate the case for a swift pace of rate cuts. Policymakers at the European Central Bank stressed caution, weighing the risks of easing prematurely against the potential drag of restrictive policy on already weak growth. Across the Channel, the Bank of England confronted similar trade-offs, with markets scaling back expectations for aggressive easing after long-dated gilt yields spiked, reflecting scepticism about inflation being fully under control. Central banks in Asia, by contrast, leaned more openly towards stimulus, with Beijing signalling greater policy support as part of its effort to stabilise equity markets and reinforce growth momentum.
Geopolitics added an extra layer of volatility. The escalation of tariff measures by Washington reignited trade tensions across multiple continents, with allies and rivals alike facing steep levies. While the rhetoric initially buoyed some commodity-linked exporters through pre-emptive stockpiling, the longer-term fear was that such policies would stifle trade flows and weaken global demand. Meanwhile, in Eastern Europe, Ukraine continued its campaign of drone strikes against Russian energy infrastructure, severely disrupting refining capacity and sparking fuel shortages inside Russia. These developments not only strained Moscow’s domestic economy but also injected fresh uncertainty into energy markets already grappling with oversupply dynamics.
Elsewhere, diplomatic friction surfaced in the Arctic as European governments publicly challenged U.S. efforts perceived as undermining Greenland’s status, signalling the widening scope of geopolitical contest beyond traditional theatres. In Asia, tensions around critical minerals and semiconductor supply chains highlighted the uneasy balance between rivalry and dependency, as Washington eased restrictions on certain chip exports in exchange for access to rare earths. This delicate trade-off underscored how technology and resources remain central to great-power competition.
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