Market Recap for August
August shifted market attention away from geopolitical tensions and towards monetary policy, inflation and bond-market volatility. With US-Iran tensions becoming less dominant, investors focused more closely on whether resilient economic growth and persistent inflation could push interest rates higher again.
Fed Chair Kevin Warsh’s Jackson Hole speech reinforced that uncertainty. While highlighting the strength of the US economy, Warsh remained cautious on inflation and reiterated the Fed’s commitment to its 2% target. At the same time, Treasury Secretary Scott Bessent’s increased Treasury buybacks brought the relationship between fiscal policy, debt markets and monetary policy into sharper focus.
Corporate earnings provide another source of strength. Record US profits and continued AI investment helped equities remain resilient despite higher yields, while gold and Bitcoin also performed strongly during the month.
Key themes
- Rate risks returned as inflation remained persistent. Softer inflation readings provided some relief, but Warsh’s Jackson Hole comments kept the possibility of further Fed tightening in focus. Tariff-related inflation and elevated energy prices added another layer of uncertainty.
- Bond markets exposed a growing policy tension. Treasury buybacks aimed at influencing longer-term borrowing costs increased attention on how fiscal policy and Fed policy could interact.
- Strong earnings kept the AI growth story intact. Record corporate profits and continued investment in AI infrastructure supported equities, with technology remaining a major source of market resilience.
Dollar Navigates Competing Policy Signals
The US dollar faced competing forces in August as persistent inflation, changing Fed expectations and concerns around US fiscal policy shaped currency markets.
Warsh’s Jackson Hole speech reinforced the Fed’s cautious stance. Although recent inflation readings have softened, underlying inflation remains above the 2% target, while the resilience of the US economy and labour market leaves further tightening on the table heading into the final months of 2026.
At the same time, Bessent’s Treasury buybacks complicated the outlook by raising questions over whether fiscal and monetary policy were pulling financial conditions in different directions.
EUR: Benefited at times from USD weakness, although expectations for possible ECB tightening limited policy divergence.
JPY:USDJPY remained volatile as Treasury yields and shifting Fed and BoJ expectations drove the pair.
FX markets will remain sensitive to inflation, bond yields and any further shifts in Fed, ECB and BoJ policy expectations.
Oil Holds Firm as Geopolitical Risks Ease
Oil markets were comparatively calmer in August as Iran-US tensions became less dominant, although the risk of disruption to Middle Eastern energy supplies remained unresolved.
Demand will also be important. Resilient US economic activity remains supportive, while signs of weakness elsewhere, including China, could weigh on the outlook.
Concerns surrounding the Strait of Hormuz continued to provide underlying support, but markets increasingly turned their attention towards how energy prices could affect the global inflation outlook. With inflation already above target in the US and Europe in September, another sharp increase in crude could complicate the outlook for central banks.
Oil’s next move may therefore depend on the balance between geopolitical supply risks and global demand.
AI Earnings Keep Equities Resilient
Equity markets remained resilient in August despite higher bond yields and persistent inflation, supported by strong corporate fundamentals.
US corporate profits reached record levels during the second quarter, while Warsh noted that S&P 500 profits had risen more than 20% over the past year. Technology companies also continued spending aggressively on AI infrastructure, with Nvidia’s latest results reinforcing the strength of underlying demand.
However, record corporate profitability contrasts with a historically weak share of national income going to workers, raising questions over the longer-term sustainability of consumer spending.
For equities, the focus is whether earnings and AI-led growth can continue supporting elevated valuations as financial conditions remain restrictive. Elevated technology valuations could leave markets more sensitive to disappointing earnings, weaker economic data or another rise in bond yields.
Gold Rallies as Fiscal Concerns Support Demand
Gold was one of August’s standout performers, gaining around 13% as dollar weakness, fiscal concerns and renewed demand supported the precious metal.
Treasury buybacks added to concerns around longer-term US borrowing costs and government debt, strengthening demand for hard assets even as the Fed maintained a restrictive policy stance.
That creates a more complicated outlook for gold. Warsh’s commitment to the Fed’s 2% inflation target means further rate increases remain possible if inflation stays elevated. Higher Treasury yields and a stronger dollar would traditionally pressure non-yielding assets, potentially creating further volatility.
Gold therefore enters September caught between competing forces: tighter monetary policy on one side and concerns over inflation, government debt and longer-term currency debasement on the other.
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Bitcoin Breaks Higher as Hard-Asset Demand Grows
Crypto markets recovered strongly in August, with Bitcoin climbing back above USD 80,000 as risk appetite gradually spread into the wider digital-asset market.
The move was notable because it occurred alongside growing discussion of further Fed rate increases. Bitcoin increasingly traded alongside gold as part of a broader hard-asset narrative, supported by concerns around US government debt, Treasury intervention and longer-term currency debasement.
Institutional demand also remained important, with US spot Bitcoin ETFs attracting significant inflows towards the end of the month.
Attention is now shifting towards whether Bitcoin’s recovery can broaden into the rest of the crypto market. Ethereum, Solana and other major cryptocurrencies have already shown renewed momentum, suggesting some capital is beginning to move further down the risk spectrum.
Tighter financial conditions remain the main counterforces as markets enter September. Analysis on selected assets is shared daily here.
Early Signals for September
September begins with an important question for markets: can economic growth and corporate earnings remain strong enough to absorb another period of higher interest rates?
Inflation data could decide the rate outlook.
Inflation, employment data and bond yields will remain central to the policy outlook. Renewed inflation pressure could strengthen expectations for further Fed or ECB tightening, lifting yields and creating a more challenging environment for rate-sensitive assets.
Renewed inflation pressure, including from higher oil prices, could strengthen expectations for further tightening, while softer inflation or weaker crude prices may ease pressure on yields and rate-sensitive assets.
Strong markets face a higher bar.
Equities, gold and Bitcoin all enter September relatively firm despite tighter policy expectations.
- Equities: Elevated valuations increase sensitivity to earnings and yields.
- Gold: Fiscal concerns remain supportive, but higher rates present a headwind.
- Bitcoin: Attention turns to financial conditions and whether momentum spreads further into crypto.
Overall, August demonstrated the resilience of markets despite a more challenging interest-rate backdrop. Strong economic activity, record corporate profits and continued AI investment supported risk sentiment, while gold and Bitcoin benefited from growing fiscal and hard-asset narratives.
September will test whether those themes can withstand renewed inflation pressure, higher bond yields and the possibility of further monetary tightening.
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