August 2025 Market Review: Labour Weakness, Policy Uncertainty and Commodity Strength

The US Federal Reserve initially held rates steady despite this growing evidence of labour-market weakness, but Chair Jerome Powell used his Jackson Hole speech later in the month to signal that interest rate cuts were on the table. Inflation measures have provided room for manoeuvre with the PCE index holding at 2.6% and consumer prices undershooting forecasts.

For now, continued optimism across financial assets leans on the anticipation of a response from the Federal Reserve to weakening data and, in particular, that it will ultimately prioritise jobs over price stability. Political pressure continues to push in this direction which was further made clear by the White House during the month in seeking to remove sitting Federal Reserve governors - despite such actions raising questions about central bank independence and putting at risk longer-term borrowing costs which have been steadily climbing for much of the developed world.

The modest exposure to US treasuries in the T. Bailey Multi-Asset funds is via a holding in the iShares $ Treasury Bond 7-10yr UCITS ETF. With an average duration of 8.5 years, this sits towards what has been the more stable section of the yield curve whilst generating a yield of 3.9%.

At the shorter end of the curve, rates are under downward pressure. In the UK, the Bank of England cut base rates to 4.0% in a narrow vote, albeit warning that inflation would remain sticky for longer than expected.

The European Central Bank held rates at 2.0%, noting that eurozone manufacturing had returned to expansion for the first time in three years. Furthermore, services activity remained firm across Europe, while Britain’s services PMI reached a one-year high even as factory output lagged. These shifts underscored diverging patterns in activity: resilience in services and weakness in industry.

In the commodity sphere, US oil output hit a record 13.6 million barrels a day whilst OPEC+ confirmed a September oil supply increase of 547,000 barrels a day, erasing the voluntary cuts made in 2023. Despite greater supply, safe-haven demand pushed gold to fresh nominal highs above US$3,400 an ounce during the height of tariff tensions.

Despite the global economy absorbing shocks from weak US data, sweeping tariffs, and central-bank recalibration, August proved a somewhat calm month across global equity markets which collectively progressed around 0.5% in Sterling terms. Nonetheless the overriding pattern of fragile growth, persistent trade conflict and stretched valuations in sizable pockets of equity markets provides us with reason to remain cautious and diversified within the T. Bailey portfolios.