August 2025

Looking back at August, markets were on a knife-edge, racing to highs only to retreat amid uncertainty, as investors weighed the looming prospect of rate cuts, trade tensions, and complex politics.

Geopolitics in August was led by the Trump–Putin summit in Anchorage, Putin's first visit to a Western nation since 2022. Yet Trump's attempt at peacemaking yielded little success. By month's end, Trump shifted from conciliatory to confrontational, imposing 50% tariffs on Indian imports due to its Russian oil purchases. The move rattled Indian markets, sent the rupee plummeting, and soured a key partnership.

The economic narrative was defined by slowing momentum and fragile consumer sentiment. In the US, a weaker July payrolls report and downward revisions to earlier months suggested the labour market was cooling. Retailers flagged subdued spending, while manufacturing indices slipped into contraction territory. Investors began to whisper the word "stagflation"...

In the UK, borrowing costs surged. Gilt yields rose as traders worried about fiscal risks and the government's tax policy, exacerbating concerns about persistently high inflation. Household budgets remained squeezed, even as GDP data hinted at anaemic growth. Across the eurozone, conditions were little better: Germany continued to scrape out modest industrial gains, but France faced political instability and weak consumer confidence.

Emerging markets bore the brunt of external shocks. In India, Trump's tariff hammer blow destabilised both equities and currency, raising fears of a broader economic slowdown. Indonesia, meanwhile, was rocked by widespread protests triggered by unpopular legislative perks and a police shooting, prompting Bank Indonesia to intervene in FX markets.

Monetary policymakers found themselves at a crossroads in August, with inflation still above target in most economies but growth momentum faltering. In August, the Bank of England led the way with a narrow 25bp cut to 4.0%, its lowest since 2023, a move Governor Andrew Bailey called "finely balanced" as gilt yields spiked and sterling briefly firmed. There was no change in the US, with no Fed meeting, but markets bet heavily on a September cut. Meanwhile, the ECB kept rates at 2.0%, warning of energy, currency, and trade risks, even as inflation hit its target.

Equities oscillated between euphoria and anxiety in August. In the US, the S&P 500 and Nasdaq notched fresh all-time highs mid-month, driven by hopes of a September Fed cut and relentless enthusiasm for AI. Yet by month's end, there was little to show, with the S&P 500 up 1.9%, and the Nasdaq up 1.6%. European markets were more nuanced as optimism gave way to caution. In the UK, the FTSE 100 fell as banking stocks declined on concerns about new windfall taxes, but still closed up 0.6%. In Germany, the DAX was down 0.7%. In Asia, Japan stood out, with the Nikkei 225 gaining 4.0%, buoyed by steady foreign inflows and corporate governance reforms. Meanwhile, China delivered the real surprise, with the Shanghai Composite soaring 8.1% on the back of state-backed fund buying, margin trading enthusiasm, and stronger positioning globally.

Fixed-income investors experienced a turbulent August. In the US, Treasury yields fell initially after weak jobs data, with the 10-year drifting to ~4.23%, down from July's highs. The 2-year yield dropped to 3.6%, while the 30-year rose towards 4.9%, producing a rare steepening of the yield curve. The move reflected expectations of Fed cuts at the front end and concerns about fiscal deficits at the long end.

In the commodities market, oil prices declined as the narrative shifted from supply fears to oversupply concerns, with WTI down 7.7% and Brent 6.1%. Precious metals remained a safe haven, with gold continuing its upward trend, increasing by 2.9%, while silver saw the real movement, rising 10.8%. Part of this was the classic "catch-up" effect, with silver often lagging behind gold in safe-haven rallies, then surging as investors seek cheaper exposure once gold becomes expensive. Silver also had a strong industrial demand story behind it, particularly from solar panels, batteries and electronics.

The US dollar softened in August against the euro and sterling, as expectations of Fed cuts gained traction.

Digital assets also added their own drama to the month of August. Bitcoin surged past $124,000 to new all-time highs before correcting to $108,928 by the month's end. Analysts flagged $109,000 as the key support level. The broader crypto market capitalisation also fell below $4 trillion, a modest pullback after months of exuberance.