Global markets delivered another month of steady gains in August, supported by resilient economic activity and expectations of more supportive central bank policy in the US. While political headlines and policy uncertainty created short-term volatility, diversified portfolios again demonstrated their ability to navigate these conditions.
Economic Overview
In the US, economic data painted a mixed picture. GDP growth for the second quarter was revised higher to an annualised 3.3%. At the same time, weaker job creation raised questions about the labour market’s momentum. Inflation was lower than expected, with signs that price pressures are easing. This informed investors that tariffs have not yet fed through into higher consumer prices.
Europe’s economy showed modest improvement, with business surveys signalling expansion and inflation broadly in line with expectations. In Japan, growth exceeded forecasts and inflation remains elevated. New Zealand also recorded encouraging signs, with manufacturing activity expanding, though retail sales and producer price inflation softened.
Central Banks
Monetary policy remained in sharp focus. The Reserve Bank of New Zealand, the Reserve Bank of Australia and the Bank of England cut their policy rates by 25 basis points to 3.0%, 3.6% and 4.0% respectively. In the US, remarks from Federal Reserve Chair Jerome Powell at Jackson Hole suggested that a rate cut in September is increasingly likely, while debates about central bank independence added some uncertainty.
The European Central Bank signalled that current settings remain supportive and further cuts are unnecessary. The Bank of Japan is increasingly confident in the economy and persistent inflationary pressures point to a possible rate increase later this year.
Bonds and Currencies
Global bond markets delivered mixed returns. In New Zealand, lower government bond yields offered support to fixed income returns. Fed rate cut expectations lowered near-term US yields, though long-dated Treasury bonds saw yields rise on fiscal concerns. European government bonds weakened, particularly in France where political turbulence raised concerns about the government’s ability to manage its debt and spending. Japanese bond yields also moved higher as confidence in the domestic economy grew.
Currencies reflected shifting rate expectations. The US dollar resumed its 2025 slide as investors priced in potential Fed cuts. The New Zealand dollar held steady at 0.59 US dollar.
Equities
Equities advanced globally, with the MSCI All-Country World Index rising 2.6% in NZ dollar terms. Developed markets performed well, led by Japan’s continued rally, while emerging markets also posted gains on the back of a softer US dollar and supportive policy measures in China.
Materials outperformed as it benefited from expanding manufacturing activity, while technology lagged as investors reassessed expectations around artificial intelligence returns. Value stocks outpaced growth stocks. In the US, the S&P 500 gained 2.1% in NZ dollar terms, supported by stronger-than-expected corporate earnings despite some mid-month volatility. Europe posted modest gains and New Zealand’s NZX 50 rose 0.8%.
Outlook
While political and policy risks remain, our portfolios are well positioned – diversified across regions, asset classes, and investment styles – to protect capital in times of stress and participate in global growth opportunities.