Global equity markets continued their run higher in August, with major US indices like the S&P 500 Index and Nasdaq Composite Index, the UK’s FTSE 100 Index, and Japan’s TOPIX Index reaching record highs. At the time of writing (20 August) the S&P 500 Index was up almost 1% month-to-date.
The rally was driven by solid second quarter corporate earnings, ongoing enthusiasm around artificial intelligence, and some easing in trade tensions. Even new tariff announcements from the US didn’t derail momentum, as they largely targeted countries that hadn’t met President Trump’s early-July negotiation deadline.
Economic data was mixed. In the US, headline inflation came in below expectations, but producer prices saw their biggest monthly jump in some time – a sign that tariff impacts may still be working their way through the system. Meanwhile, bond markets were range-bound, with yields slightly lower over the month.
Closer to home, the Reserve Bank of New Zealand (RBNZ) cut the Official Cash Rate (OCR) by 25 basis points to 3.00%, citing a weakening economy and the highest unemployment rate in several years. Across the Tasman, the Reserve Bank of Australia (RBA) resumed its rate cuts, after pausing in July, as it reflected similar concerns about growth and inflation.
The Month Ahead September 2025 summary
A pivotal Fed meeting
The US Federal Reserve’s (the Fed) next meeting on 17 September is shaping up to be a key one for markets. A 25 basis point rate cut is widely expected, following signs of a softening labour market and growing concerns about the economic impact of tariffs. July’s jobs report disappointed, and inflation data showed headline CPI easing to 2.7%. Retail sales rose only modestly in July, while a key measure of manufacturing activity signalled a deterioration in operating conditions.
While the data supports a case for easing, its rate-setting committee remains divided, and external pressure from the White House adds further complexity. Meanwhile, minutes from the Fed’s July meeting indicated that its committee views the upside risks to inflation as more significant than concerns about labour market softness. Nevertheless, market expectations for a cut remained unchanged following the release of the minutes.
Several other central banks are scheduled to meet in September, including the European Central Bank (ECB) and the Bank of England (BoE). As of mid-August, market pricing suggests that both are likely to keep interest rates unchanged. After an extended period of easing, the ECB has shifted to a ‘wait and see’ mode, while the BoE is worried about a pickup in inflation, which jumped to 3.8% in July.
New Zealand – watching the data for the next move
The RBNZ’s August rate cut was accompanied by a dovish tone, with two members favouring a larger 50 basis point move. The central bank now forecasts at least one more cut before year-end, but whether that comes in September will depend on incoming data.
Unemployment rose to 5.2% in the second quarter – its highest level since 2020 – and food price inflation rose to 5.0% annually in July. These figures suggest household spending may remain subdued.
Looking ahead, second quarter GDP figures are expected in September, and forecasts point to a contraction in growth, compared to the previous quarter’s 0.8% expansion. If the data confirms a deeper slowdown, the RBNZ may act again. However, any signs of stabilisation could see the central bank pause and reassess.
Geopolitics and trade negotiations
Geopolitical tensions remain elevated, particularly in Eastern Europe. While there have been diplomatic efforts — including a summit in Alaska between Presidents Trump and Putin — no ceasefire has been reached. Ukraine continues to resist territorial concessions, and Russia has made demands that challenge Ukraine’s sovereignty. Meanwhile, fighting persists. Headlines around the conflict remain frequent, and any escalation or breakthrough in peace talks could have implications for energy markets and investor sentiment.
Elsewhere, trade negotiations with China have been extended by another 90 days, giving room for diplomacy but also prolonging uncertainty. Investors will be watching closely for developments on both fronts.
Our investment strategy
We remain cautious on equities. Valuations are elevated, particularly in the US, and while earnings have been strong, the margin for disappointment is narrow. We continue to hold a modest underweight in US equities, mindful of stretched valuations and signs of slowing economic momentum.
We’ve recently closed our long position in US government bonds. While we previously saw upside potential, the data hasn’t confirmed a significant slowdown.
Our focus remains on managing risk, preserving capital, and staying nimble in a market that’s being shaped by central banks, geopolitics, and evolving economic data.