The broader policy backdrop tilted more clearly toward easing. Markets priced in a September Fed cut, the ECB signalled patience, and expectations hardened that global monetary policy would turn more supportive into year-end.

Beneath the surface, however, the risk rally showed cracks. A strong rotation across equity sectors suggested a healthier market on the surface, but the move was largely the result of short covering rather than genuine broadening of leadership. At the same time, volatility stayed suppressed, equity valuations stretched further above long-term averages and the inflationary impact of tariffs is yet to be seen. Furthermore, positioning across risk assets has climbed, reflecting a market that has leaned heavily into the soft-landing narrative. As a result, September warrants a more cautious stance, with investors well advised to prepare for higher volatility and the likelihood of pullbacks after such a sustained run.

Equities

August proved to be another resilient month for global equities, though the path was far from smooth. In the United States, markets initially faltered after July’s jobs report revealed both weaker headline hiring and the largest downward revisions since the pandemic. However, the setback was short lived. Earnings season offered broad reassurance, with roughly three quarters of S&P 500 companies beating already cautious forecasts. Manufacturing surveys also showed improvement, while the administration’s decision to take a strategic stake in Intel underlined the policy push to strengthen domestic semiconductor capacity. Against this backdrop, the S&P 500 advanced by 2% in August, notching a fourth consecutive monthly gain as investors grew confident that the Federal Reserve would deliver a September rate cut following Chair Powell’s dovish tone at Jackson Hole.

In Europe, performance was more muted but still positive. The Stoxx 600 rose 1% over the month, supported by resilient economic data and a modest rebound in manufacturing activity. Germany and Spain delivered stronger than expected growth figures, while loan growth in the eurozone remained firm. Yet France stood out as a source of weakness. Political uncertainty around an upcoming confidence vote weighed heavily on local assets, with the CAC 40 down nearly 1%.

Emerging markets also contributed to global gains, with the MSCI EM index up 1.5%. China was the clear outperformer, with the Shanghai Composite rising more than 8%. The extension of the US-China trade truce until November and Beijing’s pledge to triple chip supply by 2026 provided a strong boost to technology shares. Brazil’s Bovespa also rebounded by more than 6%, while India lagged under the pressure of new US tariffs. Overall, August confirmed that investors remained willing to look through political noise and trade tensions so long as global growth indicators held up and central banks leaned toward easing

Fixed Income

Bond markets found renewed support in August as investors shifted focus from fiscal pressures to the prospect of earlier monetary easing. The Bloomberg Global Aggregate index gained 1.5%, reversing the prior month’s weakness. Softer US labour market data and a dovish Jackson Hole outcome helped anchor expectations for a September rate cut. As a result, U.S. Treasuries rallied across the curve, with the 2-year yield falling 34bps to 3.62%, its largest monthly drop in a year, and the 10-year easing 15bps to 4.23%.

Fixed income investors took comfort in downward revisions to payrolls and a subdued inflation print, which together shifted the balance of risks toward easing. The curve steepened as near-term yields declined more sharply, although concerns about deficit financing and institutional independence kept the long end sticky.

Credit markets again outperformed government bonds. Investment-grade spreads tightened further in both the US and Europe, supported by strong earnings delivery and expectations for lower policy rates. US high yield saw solid demand, with spreads grinding tighter despite a heavy supply calendar. Emerging market debt also gained, buoyed by a softer dollar and optimism around China’s trade truce extension and targeted stimulus.

In Europe, bond markets grappled with rising political risk. French government bonds underperformed sharply, with the Franco-German 10-year spread widening by 13bps to 79bps. At the same time, the French 10-year yield closed just 5bps below Italy’s, the narrowest gap between the two since 2003. Investors grew uneasy ahead of the September confidence vote, questioning France’s ability to rein in a deficit near 6 per cent of GDP. Elsewhere in the eurozone, yields edged modestly higher amid firmer activity data and stable inflation, leaving core markets more insulated.

Commodities and Currencies

Commodities delivered mixed returns in August. Gold was the standout, rising 4.8% to a record USD 3’448 per ounce as investors sought protection against policy uncertainty and priced in faster rate cuts. Brent crude fell more than 6% and WTI dropped almost 8% as supply remained ample and fears of softer global demand weighed on sentiment.

Currencies reflected shifting interest rate expectations. The US Dollar Index weakened by 2.2% on the month, declining against all G10 peers as markets priced in imminent Fed easing. The euro rose 2.55% against the dollar, supported by resilient eurozone data, while sterling gained 2.2%.

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