Market Review – August 2025

Despite a shaky start to the month in response to data showing a marked slowdown in the US labour market, stockmarkets generally posted gains in August, helped by growing expectations the US Federal Reserve (Fed) would cut interest rates in September. Developed market government bonds recorded mixed fortunes, with US bonds (Treasuries) outpacing UK (Gilts) and German (Bunds) bonds.

Equities (shares) saw a broadly positive month, with the S&P 500 Index recording its fourth consecutive monthly gain. This rally was underpinned by growing expectations of a Fed rate cut in September, especially after Chair Jerome Powell’s comments at Jackson Hole – an annual conference where central bankers, economists and policymakers discuss global economic issues and trends.

Japanese shares were lifted by domestic optimism and foreign investors diversifying away from other markets, while China’s Shanghai Composite posted a strong gain on improving sentiment and expectations of policy support. European shares also ended the month higher overall, although French equities underperformed due to political uncertainty ahead of a confidence vote on 8 September, called by Prime Minister Francois Bayrou, over his deficit-cutting proposals.

In fixed income (bonds) markets, US Treasuries rallied, particularly at the short end, on expectations of monetary easing (when central banks lower interest rates or take other steps to increase the amount of money in circulation). The 10-year yield also declined, contributing to a positive return for US Treasuries in the month. However, concerns about the Fed’s independence led to higher inflation expectations and a steeper yield curve. UK Gilts and German Bunds suffered small losses, while French government bonds underperformed amid fiscal concerns. In the UK, the Bank of England cut interest rates by a quarter-of-a-point (0.25%), despite some policymakers’ worries about high inflation.

The US dollar fell against other major currencies in August, as investors priced in a faster pace of US rate cuts. Notable weakness was apparent versus the Japanese yen, euro, UK pound and some emerging market currencies.

Commodities experienced varied performance, with gold and copper posting gains, while the oil price declined.