Tariffs take centre stage again
The U.S. stock market lost momentum in early August, retreating slightly from July’s all-time highs as investors grappled with renewed tariff uncertainty. President Trump announced that the “blanket tariff” proposal remains under consideration, despite widespread criticism from business leaders. Markets initially shrugged off the rhetoric, but volatility picked up after the president suggested the 15–20% levy could be implemented “before the election,” we assume he means the 2026 mid-terms.
The administration continues to issue individual tariff letters, with the EU still in limbo. Negotiations stalled last week, prompting the president to reiterate his threat of a 30% tariff on European imports. Meanwhile, the copper tariff—introduced in July—has already rippled through construction and manufacturing, pushing up input costs and squeezing margins. U.S. tech firms have also warned that higher copper prices may delay data centre expansion.
Canada and Mexico remain on the receiving end of punitive tariffs, though both governments have said they will challenge the measures at the WTO. Brazil is still subject to the 50% tariff announced last month, with relations between Washington and Brasília deteriorating further.
For investors, the result has been a choppier market backdrop. Equity inflows slowed, while defensive positioning in U.S. Treasuries and gold picked up.
UK edges closer to recession, but rate cut delivers relief
UK GDP data for June provided a surprise rebound after two months of contraction, but July figures pointed to renewed weakness in manufacturing and retail. The combination of April’s tax increases, higher business costs, and trade disruption has left the economy struggling to regain momentum. The labour market is showing cracks, with unemployment ticking up to 4.7% and job vacancies falling for a fifth consecutive month.
Against this backdrop, the Bank of England cut its base rate from 4.25% to 4.0% in August — the fifth reduction since last summer. Policymakers cited “persistent weakness in domestic demand and a marked deterioration in forward-looking indicators.” The decision was narrowly split, with some members pushing for a larger 50bps cut. Markets now expect further easing before year-end, potentially taking the base rate to 3.5% by December.
Chancellor Reeves faces increasing pressure ahead of the Autumn Statement. With gilt yields declining, fiscal space has improved slightly, but weak growth raises the risk that she will need to consider further tax increases to keep public finances aligned with fiscal rules.
Other viewpoints
Cash
The UK base rate was lowered to 4.0% in August. Instant access savings accounts remain around 4.0–4.2%, while fixed-term rates have softened more sharply. Analysts now anticipate 3.25–3.5% by year-end, with the possibility of 3.0% in early 2026. So instant access cash is still good at the moment and it may be the last chance to get fixed rates that will hold as interest rates drop. I believe guaranteed returns at close to 4% are certainly worth it for short term holdings, so if you plan to fix your savings rates at some point in the future now is likely to be a the best time to do it for a few years to come.
Fixed Interests
UK gilts rallied, with 10-year yields dipping to 4.4% after the BoE’s cut. U.S. Treasuries strengthened as inflation slowed, with the 10-year yield falling to 4.2% for the first time since spring. With interest rates falling worldwide the value of existing bonds, both gilts and corporates, are likely rise, hopefully cancelling out some of the drops seen in 2022.
Alternatives
Gold extended its gains, up 2.1% in August as geopolitical tensions persisted. Silver followed suit, climbing another 5%. Oil prices edged higher to $72/barrel after renewed supply disruptions in the Middle East. Copper prices stayed elevated following July’s U.S. tariff announcement, weighing on industrial buyers worldwide. With inflation rearing its head again we expect gold to act as a natural hedge against, being a real asset with limited supply, so, even with the value of gold being at an almost record high, we expect its steady rise to continue.
UK Shares
The FTSE 100 consolidated above 9,000, with strength in energy and banking offsetting weakness in consumer-facing stocks. Domestically focused mid-caps rallied after the BoE rate cut, though wage growth slowing and unemployment rising tempered enthusiasm. With a lot of UK companies trading on the global stage, the rise in UK equities is more closely linked to the rise in global GDP rather than the UK’s domestic GDP performance. So we expect UK equities to continue to perform well, especially as, even with the current sustained rise, they remain very good value and still seem like a bargain compared to their US counterparts.
US Shares
The S&P 500 and Nasdaq fluctuated but remained near record territory. Nvidia’s rally showed signs of cooling, but AI optimism continues and its uses continue to be integrated into all manner of products and services. That being said, there are a lot of structural problems with the US right now.
The Big 7 technology companies may struggle to continue to grow given their already bloated size when measured in price to earnings ratio, and the concentration risk in the S&P 500 is high with those companies making up close to 40% of the total market value. If AI, like the internet in the year 2000, fails to become profitable quickly the bursting bubble could have a huge affect on the index. The are a lot of labour issues in the US right now as well, with Trump’s immigration policies sending business that rely on low cost workers out of business at a fairly rapid rate right now, which is likely to continue for the foreseeable future. This will force labour costs higher, which in turn will further increase inflation. We are also expecting a fall in the value of the dollar which will harm inflation even further, as will the pain of tariffs, so the likelihood of a recession looms ever closer and ever more likely. Whilst we expect the market to continue to rise we think with high equity costs there are other, better value with more potential for growth markets to invest in in the short to medium term.
European Shares
European equities were resilient, with the DAX 40 setting new highs despite ongoing uncertainty around U.S. trade policy. We think that the Euro is currently under valued, meaning that as the dollar weakens we would expect to see the Euro rise and the valuations of its companies rise with it. Although we expect only modest corporate growth we see European stocks as undervalued right now with great potential in the long term.
Asian Shares
Asian markets were mixed. Japanese equities extended gains on robust corporate earnings and friendly shareholder reforms, while Chinese indices pulled back after softer manufacturing data. China is still a good place to invest as it excels at innovation and its productivity growth has outstripped all other major economies over the years. Hong Kong rallied, helped by continued foreign inflows and a rebound in property developers. India’s markets remained strong, supported by resilient domestic consumption. As India, now the world’s most populous country, is still in the early stages of development we see huge potential in the coming years.
Emerging Markets
EM equities advanced modestly, supported by lower U.S. yields and stronger commodity prices. Latin American markets saw renewed inflows, though Brazil underperformed due to tariff headwinds and political risk. Asian EMs benefited from a weaker dollar, though inflation concerns persist in some economies.