Despite the war in Iran and continued closure of the Strait of Hormuz, as well as long term yields hitting the highest levels in nearly two decades, global equity performances were generally positive in August with the information technology sector strong amid some robust corporate earnings. Brent oil remained relatively stable around $85 per barrel amid a temporary ceasefire and higher than expected US oil reserves. This allowed the Federal Reserve to keep the interest rate steady once again, though several FED governors have once again called for another increase amid sticky inflation.

Markets are on edge as the yield on 30-year US Treasuries rose to the highest since 2007, French borrowing costs hit the loftiest since 2008, and their German peers traded at 2011 levels. In the UK, equivalent gilt yields are approaching 6%, while similar-maturity Japanese ones are close to their all-time high. At the same time, Foreign holdings of U.S. Treasuries slid in June, led by declines in holdings from Japan, the UK and China as the dollar's standing as global reserve currency becomes scrutinized under the current leadership. US national debt also crossed a historic milestone, exceeding 40 Trillion dollars.

The increase in treasury yields was strong enough for Treasury Secretary Scott Bessent to take unusual action, saying the Treasury would "at least double" the amount of 10-year, 20-year and 30-year Treasury bonds it buys back, though in our opinion that would only serve as a drop of water on a hot plate and could further complicate the FED's policy.

At the same time, President Trump reignited the trade conflict with Canada, threatening to impose 50% tariffs on a range of Canadian goods, citing discriminatory trade practices around automobiles, alcohol, and dairy products. Canada responded in kind, saying they would raise tariffs on US goods dollar for dollar. The new tariffs would have limited immediate macroeconomic effects, as only about 5% of Canadian goods that the US imported last year would see the new duties and don't include Candian oil, gas, potash and electricity, among other goods, that the US heavily depends upon.

To put the icing on the cake, at the very end of August the US military struck Iranian rocket launchers that were preparing to send mines into the Strait of Hormuz, following weeks of relative calm, escalating the conflict once again.

Despite all the negative news, US indices closed August in green with the Dow Jones, S&P500 and Nasdaq Composite adding 1,34%, 2,62% and 3,93% respectively. Energy, information technology and materials were the strongest-performing sectors. The dollar lost 0,78% against the Euro.

Eurozone stocks edged higher amid gains for the information technology, communication services and financials sectors. Meanwhile, more defensive areas of the market tended to underperform with negative returns from real estate, utilities and consumer staples. Eurozone annual inflation for July was confirmed at 2.9%, well above the 2% target. Markets continued to anticipate an interest rate rise at the European Central Bank’s September meeting.

The German DAX added 2,45%, the French CAC index lost  2,06% and the overall Eurostoxx 50 added 0,98%. The Slovene SBI Top lagged, dropping a modest 0,32% to 3212.

Japanese equities delivered solid gains in August, with the Nikkei 225 up 3,03%. Volatility remained elevated due to changing expectations for US interest rates, Middle East tensions, and coordinated Japan–US currency intervention to support the yen, which lost 2,15% against the Euro.

Emerging market equities posted positive returns in August in US dollar terms, outperforming developed market peers. Brazil was the key underperformer among the larger index markets, as economic data pointed to slowing growth and political developments came to the forefront with the October presidential election looming.

Precious metals rebounded with gold adding 9,12% to close at $4481 per ounce, while silver added 15,93%. Also Bitcoin made a solid rebound after months of corrections.

Rudy Marchant

Fund manager OTP Skladi

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