Earnings strength supports markets as policy and geopolitical risks return

Global equities advanced in August as strong corporate earnings supported markets through much of the month. Sentiment became more cautious later as rising US government debt triggered bond market weakness, renewed Middle East tensions lifted energy prices and a hawkish Federal Reserve message shifted interest-rate expectations. Inflation trends remained mixed across major economies, while Japanese equities continued to strengthen and Chinese markets diverged. Emerging markets outperformed developed peers, helped by resource-linked markets. Precious metals also strengthened as safe-haven demand increased, while renewed supply concerns supported oil prices. Overall, earnings resilience was balanced by renewed policy, inflation and geopolitical uncertainty.

Key highlights:

• Strong corporate earnings supported global equities, although bond market weakness and geopolitical tensions tempered sentiment later in the month.
• Cooling US inflation contrasted with a more hawkish Federal Reserve stance, putting the interest-rate outlook back in focus.
• Emerging markets outperformed developed peers as resource-linked markets benefited from stronger commodity conditions.

Global equity markets advanced in August, with the MSCI World returning 2.6% (USD) and the MSCI Emerging Markets index gaining 3.4% (USD). A strong second-quarter earnings season drove gains through the middle of the month, lifting several major indices to record levels. Sentiment weakened late in the period as concerns over rising US government debt, which passed $40 trillion, triggered a bond market sell-off on 19 August, while renewed strikes in the Middle East pushed oil prices higher. A hawkish address by the new Federal Reserve chair at the Jackson Hole symposium added to the pressure, lifting bond yields and market expectations of a further rate increase before year-end.

The US economy expanded at an annualised rate of 1.5% in the second quarter, slowing from 2.1% in the first quarter, although the composition was healthier than the headline figure suggested. Consumer spending rose 3.4%, the strongest increase since the third quarter of 2025, while fixed investment climbed 7.0% on demand for equipment and intellectual property. Headline inflation slowed for a second month to 3.4% year-on-year in July from 3.5% in June as the energy shock continued to fade, while core inflation eased to 2.5% from 2.9%. The unemployment rate fell to 4.1% from 4.2%, although the decline reflected a shrinking labour force, with participation at 61.4%, its lowest level since early 2021. The Federal Reserve did not hold a policy meeting in August, but Chair Kevin Warsh struck a hawkish tone at Jackson Hole, prompting markets to price in a rate increase before year-end. US equities rose, with the S&P 500 gaining 2.7% (USD) and the Nasdaq Composite advancing 4.0% (USD), supported by strong earnings.

European equities edged higher, with the STOXX All Europe index gaining 0.6% (EUR), although performance was fragmented. Germany’s DAX rose 2.5% (EUR) to a record high, while France’s CAC fell 2.1% (EUR) amid weakness in luxury shares. Euro-area inflation accelerated to 2.9% year-on-year in July from 2.8% in June, driven by energy inflation of 10.3%, up from 8.5%, as hostilities resumed. Services inflation edged up to 3.3% from 3.2%. The European Central Bank did not meet in August. The euro-area economy grew 0.4% in the second quarter, twice the expected pace.

UK inflation rose to 2.9% year-on-year in July from 2.6% in June, the highest level in four months. The largest contribution came from housing and household services, which increased 4.1% from 2.7%, reflecting the 13% rise in the energy price cap that took effect at the start of the month. Gas prices surged 14.7%, the largest increase since October 2022. The Bank of England did not hold a policy meeting in August. The FTSE 100 was broadly flat, returning 0.2% (GBP), after briefly approaching record levels earlier in the month.

Japan’s Nikkei 225 rose 3.1% (JPY), extending its strong performance for the year, although volatility increased on the final trading day of the month. Headline inflation accelerated to 1.9% year-on-year in July from 1.6% in June, the highest reading since December 2025. The increase reflected a slower decline in electricity prices as government energy subsidies were scaled back, alongside firmer food inflation of 3.5%, up from 3.2%, and household goods inflation of 3.7%, up from 2.3%.

Chinese equity markets diverged in August. Mainland shares gained, with the CSI 300 up 1.0% (CNY) and the Shanghai Composite up 4.0% (CNY), while the MSCI China index eased 0.3% (USD) as Hong Kong listings declined amid weakness in the property sector. Inflation slowed to 0.5% year-on-year in July from 1.0% in June, the lowest level since January, as food prices fell for a fourth consecutive month and transport costs rose just 0.4% following a fuel price cut. The official manufacturing PMI improved to 49.8 from 49.2 but remained below the level separating expansion from contraction, while the non-manufacturing PMI was unchanged at 49.0.

Emerging markets outperformed developed peers, with the MSCI Emerging Markets index returning 3.4% (USD), supported by strength in resource-linked markets. The MSCI Emerging and Frontier Markets Africa ex-South Africa index gained 4.0% (USD). India’s SENSEX fell 1.3% (INR), while Brazil’s Bovespa eased 0.3% (BRL), leaving both among the weaker major markets for the month.

Precious metals led commodity markets higher. Gold rose 9.7% to $4 437.38, its first meaningful advance since February, supported by safe-haven demand and expectations of easier US policy. It reached an intra-month high near $4 690 before retreating. Silver jumped 15.6% to $66.58, platinum gained 9.0% to $1 797.29 and palladium rose 6.3% to $1 364.68. Brent crude added 2.9% to $90.49 per barrel, supported by renewed strikes in the Middle East and disruption in the Strait of Hormuz. Coal climbed 11.7% to $120.90, copper rose 4.4% to $14 445.59 and iron ore gained 4.7% to $98.80.

The rand was among the stronger emerging market currencies, gaining 2.5% against the US dollar to close at R16.13 per US dollar, supported by the rally in precious metals prices. It also strengthened 2.1% against the pound to R21.82 and 1.8% against the euro to R18.71. The rand has firmed by roughly 2.7% against the dollar for the year to date.

World Market Indices Performance 

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