Market Movers:
H2 2025 Drivers:
Risks:
U.S. trade tariffs are gradually passing through to consumer prices, with the full impact expected in early 2026 as supply chains and inventories adjust. Disruption is already visible through the combined effects of tariffs and unpredictable policymaking. This uncertainty is dampening employment and investment in the U.S., though pressures are less severe for the rest of the world. Globally, price trends remain largely disinflationary. In response, central banks are likely to keep cutting rates.
In the U.S.: Growth – currently at 2% – slows under tariffs, Fed set to ease rates by 100bps
The July labor report revealed sharp downward revisions, pointing to weaker jobs growth. Tariffs and tighter immigration are weighing on activity, though AI momentum should buffer the slowdown and fiscal stimulus (the so-called “BBB” or “Big Beautiful Bill”) arrives in early 2026. Tariffs are reversing the decline in coreinflation as firms pass on higher costs, however services inflation is set to ease. With labor data weakening, the Fed is expected to cut rates by 100bps over the next 12 months, starting in September, from 4.25-4.50% down to 3.25-3.50%.
In Europe: Eurozone steady with modest growth at 1.4%, ECB to ease further
The eurozone shows resilience despite geopolitical uncertainty, supported by the U.S. trade deal and improving survey data, including a 41-month high in manufacturing output. We believe GDP growth could reach 1.2% in 2025, aided by easier monetary policy, German fiscal support, and high consumer savings. Inflation remains near the ECB’s (European Central Bank) 2% target but is projected to slip below it next year on cheaper energy and a stronger euro. With inflation pressures easing, the ECB is likely to deliver one more rate cut this year, likely in September, from 2.00% to 1.75%.
In China: Growth on track for 5% for 2025 amid trade relief and policy support
Exports rose 7.2% YoY in July on frontloading ahead of U.S. tariffs, but GDP growth is set to slow in 2H, keeping full-year expansion near the 5% target. U.S.-China talks extended the tariff truce to 10 November, paving the way for a Xi-Trump summit, while chip curbs were eased in exchange for rare earths; effective tariffs may settle at 30–40% by year-end. Policy support will rely on further monetary easing, with 50-100bps of reserve requirement ratio (RRR) cuts and 20-30bps of People’s Bank of China (PBoC) rate cuts expected, alongside gradual fiscal measures. Inflation remains muted, averaging 0% YoY so far this year.
Global equities: U.S. and European equities gained in August, with the S&P 500 up 1.9% MTD and 9.8%YTD, and Euro Stoxx 50 up 9.3% YTD, while the Nasdaq 100 rose 11.4% YTD; volatility (VIX) declined further. In Asia, Nikkei 225 rose 4.0% MTD, Hang Seng Tech gained 4.1% MTD and 27.0% YTD, and HSCEI gained 22.7% YTD. Kospi 200 remains the regional leader at +35.3% YTD, despite a 1.9% MTD drop, while India’s Nifty 50 fell 1.4% MTD, limiting YTD gains to 3.3%.
Fixed income markets: U.S. Treasury yields fell in August, with the 2-year yield down 34bps (-63bps YTD) at 3.63% and the 10-year yield down 14bps (-34 bps YTD) at 4.23%. In contrast, German and Chinese yields were stable to slightly higher, with the 10-year German yield up 36bps YTD and the 2-year China yield up 31bps YTD.
Currencies: The U.S. dollar weakened broadly in August, with EURUSD up 2.4% MTD (+12.3% YTD) at 1.1684 and AUDUSD up 1.8% MTD (+5.2% YTD) at 0.6539. The dollar also fell against major Asian currencies, with USDJPY down 2.5% MTD (-6.3% YTD) at 147.02 and USDRMB down 1.2% MTD (-2.6% YTD) to 7.1207, a 12-month low.
Commodities: WTI oil lost 7.6% in August to USD 64/bbl (-10.8% YTD), while gold gained 5.5% (+32.1% YTD) before reaching USD 3,500/oz in early September and copper rose 4.3% (+13.4% YTD), extending strong year-to-date gains.
Crypto: We note cryptocurrencies diverged in August, with Bitcoin down 7.5% MTD but still up 15.1% YTD, stabilizing around USD 110k. Meanwhile, Ether increased 15.7% MTD (+29.2% YTD) and Solana gained 14.6% MTD (+4.3% YTD).
Outlook for H2 2025: Resilient growth and upcoming rate cuts make a positive backdrop for diversified investments.
Global equities advanced as the August tariff deadline passed smoothly and a strong U.S. earnings season, alongside dovish Fed repricing, reinforced investor confidence. While near-term upside may be capped as tariffs filter through and softer data emerge, the broader backdrop remains supportive with low recession risk and easier financial conditions ahead. Corporate resilience was evident, with EPS beats and positive guidance across sectors. Structural themes in AI, power, resources, and defense continue to drive robust earnings and underpin equity market strength.
In the U.S.: Equities hit record highs on earnings and Fed optimism
U.S. stocks reached fresh all-time highs, supported by a strong 2Q earnings season, easing trade tensions, and rising expectations of a Fed rate cut in September. S&P 500 EPS is tracking +8%, with the Magnificent 7 delivering 30% growth versus a 20% estimate. Positive 3Q guidance suggests resilience despite tariffs beginning to impact consumers, with semiconductor exemptions reducing a key trade risk. Softer labor data and stable inflation further strengthen the case for Fed easing, keeping the bull market intact.
In Europe: Equities steady as earnings outlook improves
The Euro Stoxx 50 is up 9.3% YTD, though the 2Q earnings season was soft with fewer beats amid weak growth and currency headwinds. With most of the drag now priced in, company guidance has adjusted to FX pressures. The recent U.S.-EU trade deal is improving visibility, supporting business confidence. Earnings growth is expected to recover to around 10% in 2026 and accelerate further into 2027.
In China: Equities rally on policy support and tech strength
The Hang Seng China Enterprises Index (HSCEI) is up 24% YTD, supported by solid first-half GDP growth and incremental policy measures addressing both near-term stimulus and long-term demographic challenges.The economy remains resilient with reasonable valuations, though sustaining the rally depends on continued demand-boosting policies. China tech stands out, driven by targeted support, strong AIinvestment, and structural growth momentum. Consensus sees 25% earnings growth for the Hang SengTech Index in 2025, with valuations attractive versus global peers.
The USD slipped 2% in August on soft labor data and rising Fed cut expectations. EUR and RMB gained support from trade momentum, fiscal stimulus and their central bank nearing policy normalization. Concerns over U.S. debt and Fed independence are undermining the dollar’s safe-haven role. Tariff-driven volatility reinforces the need for active hedging in EUR, RMB, and JPY.
EURUSD near 3-year high at 1.1650, up ~12% YTD on broad dollar weakness
The EURUSD remains a key beneficiary of USD weakness, backed by fiscal support and an ECB nearing its last cut. Muted U.S. growth and renewed Fed easing add to downward pressure on the dollar. Easing trade tensions shift the focus toward domestic U.S. policy. Against this backdrop, the USD is likely to keep declining into the coming quarters.
USDRMB declines to 7.14 from 7.37 high as gradual selloff resumes
The PBoC’s firm stance and strong exporter FX conversion drove down USDRMB to 7.14, its 2025 low, signaling further yuan strength. Market sentiment is supported by structural reforms, a U.S.-China trade truce, and resilient Chinese equities. Fed rate cuts expected from September add to the downside pressure on the dollar. With risks skewed toward RMB appreciation, USDRMB could break below 7.0 in 2025, warranting hedging.
USDJPY at 148 as yen rallied ~7% YTD on dollar weakness
Yen gains have slowed as a risk-on backdrop supports carry trades (borrow and sell JPY / buy USD to pocket the yield differential). The key driver, narrowing U.S.–Japan rate differentials, still points to USDJPY downside. At 148, the pair looks capped given the real yield spreads. Hedging flows from Japanese invest or sand exporters should offer additional support for the yen.
U.S. yields fell in August (2-year: -34bps to 3.65%, 10-year: -14bps to 4.25%), while Eurozone yields were steady and China’s 10-year yield edged up to 1.8%. Tighter credit spreads have lifted fixed income returns. We favor duration and investment-grade bonds, with rates driving return potential.
How to benefit from the cycle of central bank rate cuts?
With bond yields near 20-year highs and credit spreads widened by U.S. and European political risks, central bank rate cuts create a favorable entry point for fixed income. Defaults remain low, supported by growth and policy. Bank institutional bonds stand out, offering close to 6% in USD and 4% in EUR for 7- to 10-year maturities.
Gold: Breaks USD 3,500/oz, up 32% YTD
Gold has rallied on trade tensions, weak U.S. data, and geopolitical uncertainty, with risks skewed higher. Sticky inflation, slowing growth, Fed easing, and USD weakness should lower real yields and support gold prices. Strong ETF inflows and sustained central bank buying are underpinning the gold rally.
Oil: Down 11% YTD to USD 64/bbl
Crude oil prices remain supported as OPEC+ production increases were milder than expected – only 0.5m bpd added versus the 1m bpd quota. China’s stronger-than-expected demand and ongoing stockpiling have also helped stabilize prices. Chinese purchases appear strategic, likely aimed at filling reserves amid trade and geopolitical risks. These non-price-sensitive flows add a layer of demand resilience to the oil market.
