Relief from US tariffs has fuelled renewed optimism, though commercial frictions remain, notably with India and Switzerland. Hope of a Russia–Ukraine ceasefire and rising expectations of a Federal Reserve rate cut have further buoyed equities. However, with equity valuations increasingly stretched, markets may face bouts of short-term volatility.
Market recap
Beyond the numbers
Macroeconomics
As expected, the Bank of England lowered its key interest rates by 25 basis points to 4.0% but remained vigilant about inflation. UK key interest rates are likely to remain unchanged in the coming months. Meanwhile, the Reserve Bank of India kept its rates at 5.5%, adopting a ‘wait-and-see’ approach.
Overall, confidence in services recovered in July, reflecting tariff negotiations. However, in the US, the PMI and ISM services indices diverged, indicating contrasting views between large and small companies, as well as between exporters with less positive opinions and firms with more constructive views focusing on domestic demand.
Tensions have risen between the United States and India over tariffs. India is facing the threat of tariffs rising to 50%, 25% of which is a penalty for its purchases of Russian oil. Meanwhile, US negotiations with Switzerland have stalled, with the Alpine nation facing tariffs of up to 39%. Dialogue must continue between these countries and the US. Rumours of an upcoming meeting between Trump, Putin, and Zelensky have buoyed markets on hopes of a ceasefire in the Russia–Ukraine conflict.
Several economic publications in the US are awaited this week; among them, the core inflation rate which could reach 3%, and retail sales which could remain sustained for July.
Asset allocation: strategic views as at August 2025
Equities
Global equity markets rebounded last week, with the MSCI All Country World Index (ACWI) Total Return rising 2.5%, reversing last week’s 2.5% decline. The rally was driven by renewed optimism around potential tariff relief, growing expectations of a rate cut by the Federal Reserve, and signs of progress towards a Russia–Ukraine ceasefire. These developments provided a supportive backdrop for risk assets, lifting sentiment across both developed and emerging markets.
All major regions ended the week in positive territory. The S&P 500 advanced 2.4%, the STOXX 600 rose 2.2%, and the MSCI China gained 1.9%, reflecting broad-based investor confidence. Sector performances were similarly constructive, with communications services, technology, consumer discretionary, and materials all rebounding more than 3%. Healthcare was a notable laggard, declining 0.4%, as the sector came under pressure from growing uncertainty around incoming tariffs specifically targeting pharmaceutical and biotech imports, which is dampening investor sentiment.
The technology sector led the rally, supported by Apple’s announcement of a USD 100 billion expansion of US-based manufacturing. Apple shares surged over 7.5% on the news, as investors viewed the move as a strong vote of confidence in domestic production and a potential pathway to tariff exemptions.
Indeed, markets responded positively to reports that companies investing in the US, including Apple, TSMC, and Samsung, may qualify for exemptions from the newly imposed 100% tariffs under President Trump’s trade measures. This policy dynamic, coupled with strong momentum in mega-cap tech, brought the Nasdaq Composite to a new all-time high.
With increasingly stretched equity valuations and seasonal weakness ahead, markets could be volatile in the short term. However, long-term investors should look beyond near-term fluctuations and remain invested, as the corporate earnings and the policy backdrop continue to support a constructive outlook over the investment horizon.
Strong momentum in mega-cap tech brought the Nasdaq Composite to a new all-time high
Fixed income
US rates moved up slightly, recovering only part of the sharp decline on 1 August that had been triggered by weaker-than-expected employment data; 10-year Treasury yields are now trading at 4.26%. In the eurozone, yields remained flat, with the 10- year Bund trading at 2.68%; this movement followed European Central Bank (ECB) President Lagarde’s comments indicating her comfort with rates at 2% after eurozone inflation came in at or below 2% for the third consecutive month, prompting investors to reassess the probability of near-term rate reductions.
Fixed income performance was subdued in Treasuries (-0.2%) and investment-grade bonds (+0.1%), whereas AT1s and high-yield bonds (+0.5% and +0.4%, respectively) benefited from spread tightening following a modest widening on 1 August.
After experiencing outflows for the four previous weeks, inflows into investment-grade corporate ETFs reached a 74-week high of USD 3.2 billion, while high-yield ETF inflows remained robust, marking the fifteenth consecutive week of positive net flows, showing a persistent appetite for the asset classes.
Robust high-yield ETF inflows show a persistent appetite for the asset classes
Forex & Commodities
Last week, the EUR/USD rose to levels of just below 1.17, reflecting the weaker than-expected NFP print from the previous Friday. This week’s US CPI data will confirm a September Fed rate cut if they print below expectations.
The USD/CHF was largely unaffected by ongoing tariff discussions and we do not believe that tariffs pose risks for a continuation of the USD/CHF downward move over the medium term. The GBP/USD edged higher following the Bank of England’s 25-bp rate cut, as the MPC maintained a cautious stance on further rate cuts. The GBP/USD will likely consolidate in the coming week.
Gold rose to levels of just below USD 3,400 per oz, reflecting the prospect of lower Fed interest rates and an ongoing decline in real rate expectations. We maintain a constructive stance and highlight the prospects of an imminent breakout on the upside over the coming weeks.
The GBP/USD will likely consolidate in the coming week
The opinions expressed herein are correct as at 11 August 2025 and are subject to change without notice. This information should not be relied upon by the reader as research or investment advice regarding any particular fund, strategy or security. Past performance is not a guide to current or future results. Any forecast, projection or target, where provided, is indicative only and is not guaranteed in any way.
