MARKET PULSE: MID OF AUGUST 2025

RESILIENT RISK APPETITE BALANCED BY INFLATION PRESSURES AND EASING GEOPOLITICAL TENSIONS


MONTHLY HIGHLIGHTS

- Equity markets in the United States, led by the S&P 500 and the Nasdaq Composite, briefly reached record highs as geopolitical risks receded and corporate earnings remained supportive.

- Headline CPI in the US stood at 2.7% year-on-year, coming in below estimates, while core CPI proved stickier at 3.1% compared with expectations of 3.0%. Average hourly earnings continued to rise, with annual growth of 3.9%.

- Leading indicators in the United States signalled ongoing weakness, with a further decline recorded as measures became more evenly balanced.

- Federal Reserve Chair Jerome Powell will remain in focus at the Jackson Hole Symposium, where his remarks on the interest rate outlook are being closely watched. Markets are pricing in an 84% probability of a rate cut at the September meeting, as President Trump continues to exert pressure on FOMC members.

- Ukrainian President Volodymyr Zelenskyy managed delicate diplomatic discussions during the period, securing stronger alignment from the US administration, which has signalled a commitment to provide security guarantees should a peace deal with Russia emerge.


EQUITY MARKETS

Global equity markets recorded a broadly positive performance for the period, with gains spread across most regions. European small and mid-cap indices lagged behind, with the FTSE 250 and MSCI Europe Small Cap indices posting slight declines, while the AEX in the Netherlands remained broadly flat. Larger continental benchmarks such as the DAX in Germany and CAC 40 in France advanced modestly, with gains in the region of 1–1.5 per cent, underpinned by resilient corporate earnings and a relatively stable macroeconomic backdrop. Broader European indices, including the EURO STOXX 50, showed stronger momentum, with returns exceeding 2 per cent, signalling renewed interest in blue-chip exposure.

In the United States, the equity market demonstrated steady progress, with all major indices ending the period higher. The S&P 500 and Nasdaq Composite delivered gains of 1.8 per cent and 2.4 per cent respectively, while the Russell 2000 outperformed with a rise of 3.8 per cent, highlighting renewed investor interest in smaller capitalisation stocks. Sectoral breadth was evident, with both the S&P Midcap 400 and Russell 1000 advancing over 1.5 per cent. Notably, the Bloomberg Magnificent 7 Index climbed nearly 3 per cent, reflecting the continued leadership of mega-cap technology companies.

Asia displayed some of the strongest performances. Japan’s Nikkei 225 led global markets with an advance of 6.4 per cent, reflecting robust earnings and a supportive policy environment. Similarly, Indonesia’s Jakarta Composite gained 5.6 per cent, while Taiwan and mainland China also performed strongly, with returns of 4.2 and 4.1 per cent respectively. These results highlight a rebound in Asian equities, supported by signs of economic resilience and capital inflows into regional growth markets.

Emerging markets in Europe and beyond also delivered meaningful gains. Romania, Hungary, and Brazil posted advances of 2.7, 4.2, and 3.2 per cent respectively, with investor sentiment buoyed by attractive valuations and improving macro conditions. South Africa’s Top 40 Index added 3.2 per cent, reflecting strength in resource-linked equities. Meanwhile, Mediterranean markets such as Italy and Spain provided additional upside, with the FTSE MIB gaining 4 per cent and the IBEX 35 advancing almost 6 per cent, the latter benefitting from strong domestic momentum.

In the corporate world, Ryanair reported robust summer bookings, with fares holding steady compared with last year, spurred by strong consumer travel momentum. CEO Michael O’Leary expressed cautious optimism about meeting summer targets and highlighted early Boeing 737 MAX deliveries as important for capacity growth. The airline intends to double capacity in Albania starting April and expand Swedish operations in light of a scrapped aviation tax. These strategic moves are aimed at boosting competitiveness across the region.

Porsche Automobile Holding SE trimmed its full‑year earnings guidance due to ongoing challenges in the automotive industry including U.S. tariffs, a weak EV market, stricter emissions rules, and intensifying competition in China. The revised forecast now ranges from €1.6 billion to €3.6 billion (previously €2.4 billion to €4.4 billion). In response, the company unveiled plans to diversify its investment portfolio by targeting defence and security technologies, such as satellite surveillance and cybersecurity. Porsche SE shares rose slightly despite the guidance revision.

In the United States, Home Depot delivered its fiscal second-quarter results, with adjusted earnings of $4.68 per share and revenues of $45.28 billion. Although this slightly missed analysts’ expectations of $4.72 per share and $45.41 billion in revenue, comparable sales grew 1 percent overall (1.4 percent in the U.S.). Customers tended to concentrate on smaller-scale home improvement projects, and the company reaffirmed its full-year guidance of 2.8 percent sales growth and a 2 percent decline in adjusted earnings. The share price still surged over 4 percent, reflecting investor confidence in its market position.

Cisco Systems reported fiscal fourth-quarter earnings that slightly exceeded forecasts with adjusted EPS of $0.99 and revenues of $14.7 billion versus estimates of $0.98 and $14.6 billion respectively. Its AI-focused networking segment reported relatively strong performance, generating $7.63 billion, up 12 percent year‑on‑year.

Paramount Global and Skydance Media finalised an $8 billion merger, forming the newly established Paramount Skydance Corporation. The combined entity, now headquartered at the Paramount Pictures lot in Los Angeles, is restructuring under new leadership, including David Ellison as chairman and CEO. This represents a notable media consolidation, with the merged company poised to expand its streaming and content capabilities.


CREDIT MARKETS

Investment grade fixed income markets delivered a mixed performance over the period, with euro-denominated government bonds under particular pressure. Longer-dated euro sovereign indices declined, with 15+ Year Euro Government debt down more than 2 per cent, reflecting duration sensitivity to shifting rate expectations. By contrast, short-dated government bonds in both Europe and the United States were more resilient, with modest gains in one to three-year maturities. Sterling assets also saw some weakness, with both UK gilts and corporate bonds declining, reflecting market caution around the UK’s rate trajectory and inflation persistence. In particular, the 15+ years UK gilts sold off significantly with a clear steep curve trajectory for the UK yield curve led by inflationary concerns and budgetary deterioration.

In the U.S. Treasury market, returns were positive across much of the curve, led by the five- and ten-year maturities, which gained around 0.6 per cent. This indicates a more constructive view on U.S. rates relative to Europe, with investors positioning for potential policy easing amid softer economic indicators. Corporate investment grade bonds in dollars were broadly steady, with minimal movements, while emerging market investment grade debt came under pressure, posting declines in both U.S. dollar and euro terms. Chinese sovereign bonds slipped slightly, reflecting cautious sentiment around China’s growth and currency outlook.

High yield credit fared more strongly, showing continued 'risk-on' sentiment. Global high yield indices advanced around 1 per cent, with U.S. high yield gaining just over 0.5 per cent. European high yield was also positive, albeit more modestly. The best performance came from emerging market high yield bonds, which rose close to 1.4 per cent, underscoring investor appetite for yield and relative confidence in credit resilience despite broader macro headwinds.


CENTRAL BANKING, THE ECONOMY AND GEO-POLITICS

In the United States, the Federal Reserve opted to keep its interest rate unchanged in late July, despite internal dissent from a pair of members advocating a modest cut. The broader committee emphasised a continued reliance on incoming data to guide future decisions, particularly given the unpredictable impacts of elevated tariffs on prices and output.

By mid‑August, voices within the Fed, including regional presidents, signaled that a rate reduction remained on the table. However, these officials stressed they needed more evidence of a softening labour market and sustained inflation easing before endorsing such a move.

Meanwhile, political pressure mounted. The U.S. Treasury's top official publicly urged a substantial rate cut (on the order of 50 basis points) arguing that recent job market revisions justified a quicker pivot to easing. Such calls heightened concern that monetary policy might increasingly align with fiscal cost‑management, raising questions about institutional autonomy.

Across the Atlantic, the European Central Bank (ECB) paused on further rate adjustments, citing the ongoing uncertainty from trade tensions. While earlier expectations had leaned toward an imminent cut, renewed economic stabilisation and the EU’s recent trade agreements appeared to have postponed such action, with some now expecting a single cut before year‑end.

In mid-August, a high-level summit convened at the White House, bringing together leaders from the U.S., Ukraine, and Europe. Discussions centred on robust security arrangements for Ukraine, akin to collective‑defence treaties, amid escalating aggression from Russia. The U.S. president even engaged in a surprise phone exchange with Moscow’s leader during the session highlighting both urgency and geopolitical manoeuvring.

Relatedly, a bilateral summit in Alaska saw the U.S. president and Russia’s head of state meet to address the Ukraine conflict. Though no formal breakthroughs were announced, the encounter was interpreted by some observers as favourable to Russia reaffirming its relevance on the world stage though critics warned that the outcome left Ukraine’s position remained unresolved. Meanwhile, tensions flared between the U.S. and India. Washington imposed stepped-up tariffs allegedly due to India’s energy sourcing choices from Russia which has materially increased post-2022. This triggered retaliatory measures, casting doubt on the future of strategic engagement between the two democracies. The dispute added fresh instability to trade‑security linkages in the Indo‑Pacific.


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