Insights

August saw global equities continue to rise across the board. Although the US began implementing its reciprocal tariffs in August, these are significantly lower than the rates that were initially threatened. China and the US continued to talk on a trade deal and Trump has delayed the reciprocal tariff until November. With the tariffs also going through a court case, it is likely that there won’t be any real update to the current situation until the US is on the same page. Despite a tech sell-off to end the month, this saw US equities continue their momentum and push all-time highs.

Australian equities returned 2.63% over August and saw the ASX200 hit 9,000 points for the first time in history. Under the surface, however, was significant volatility between the individual companies as August is also the release of full year profits for companies. With the major banks being in a great earnings environment over the past year, despite a recent shift to resources, profit announcements saw investors move back to the banks. Volatility can continue to be expected once investors begin to look at fundamentals again and once again move away from the expensive banks.

The Australian 10-year government bond yield stayed relatively flat to end the month as the market had priced in the certain rate cut in August after the hold in July and economist expect another hold in September as the RBA looks to only reduce rates when they are certain it is necessary. With the Australian economy continuing to be within target ranges, despite a higher then expected inflation figure of 2.8%, the RBA can continue to be methodical as it does not want inflation to rise significantly or stoke the continued run in housing prices.

Despite a majority of the tariffs being reduced to only a reciprocal rate, this will still flow into the economy and both the Federal Reserve and Government will need to be careful on navigating this. Economists continue to expect the Fed to begin reducing the cash rate in the final 4 months of the year, however many are hesitant on indicating when this will likely occur as Trump and Powell try to wait each other out. However August saw the unemployment rate in the US reach it’s highest level in 4 years and have seen the personal consumption expenditures price (the Fed’s preferred inflation metric) reach 2.9% (above their 2% target). Depending on the impact of tariffs, rates may need to be reduced sooner than later to help boost the US economy.

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