Thomas Hibbert

Risk assets held firm through August, with global equities edging higher despite increasingly mixed macro signals. Robust earnings momentum kept markets buoyant, particularly in cyclical and smaller-cap names, but valuations leave little meat left on the bone. The resilience of risk assets belies a more unsettled backdrop in rates, where fiscal worries and divergent central bank paths drove notable dislocations. In the US, the labour market was the decisive swing factor. A deeply disappointing July jobs report, amplified by heavy downward revisions, underlined a clear weakening trend. That shift pushed the Federal Reserve (Fed) decisively towards a more dovish stance. By Jackson Hole, Chair Powell acknowledged that risks had tilted, paving the way for a September rate cut. Bond markets responded in force: US Treasuries rallied, the curve steepened, and two-year yields dropped to 3.6%. Despite some mid-month inflation noise, the balance of evidence points to easing ahead. Across the Atlantic, the UK presented a striking contrast. The Bank of England cut rates again, but only after an unprecedented split vote that revealed the Monetary Policy Committee’s (MPC) reluctance. Inflation remains sticky, with services still running hot and wage growth entrenched. That “hawkish cut” dynamic saw gilt yields grind higher, with the 30-year rising to 5.6% – the highest level since the 1990s, and above the peaks of the Truss turmoil. Markets are demanding a premium for financing Britain’s worsening fiscal arithmetic, where stubborn deficits and the exodus of high earners point to the wrong side of the Laffer curve. Elsewhere, global data was a patchwork. Eurozone business activity surprised positively, Japan faced upward pressure on bond yields, and China’s policy tweaks lifted its equity market in fits and starts. Oil markets softened as demand forecasts were repeatedly downgraded, highlighting the fragility of global consumption. Taken together, August underscored two realities. First, equities remain well-supported by earnings and liquidity, but upside is looking increasingly capped. Second, the bond market is diverging: Treasuries have turned decisively positive on looming Fed easing, while gilts stand out as a pressure valve for fiscal credibility.

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