“The Tide Turns”

The last couple of weeks were a genuine turning point in terms of risk appetite. We entered a period where the market braced for potential hikes by the FED, bond yields marching to multi-year highs and oil futures spiking on renewed conflict.

The trigger for the hawkish phase was Fed Chair Kevin Warsh’s speech at the Jackson Hole symposium. He reiterated that there is more work to be done with regards to inflation and as a result rate hike market expectations for September, increased to 57% from the mid-30s overnight. As we stand today, this probability stands at 53.6% (see below table)

On the geopolitical front, the Iran situation deteriorated with the US Central Command launching new strikes on Iranian targets with oil spiking to $95 a barrel – a fresh multi-week high. President Trump has characterized the latest attacks as short-lived while signaling readiness for further strikes, which took some of the heat out of oil into month-end. The economic data showed a completely different picture.

After ADP’s private payrolls number at just 38,000, the weakest since January, the August employment report was decisively weak. Non-farm payrolls rose to only 22,000, against expectations nearer to 53,000. June data was also revised into negative territory, the first outright monthly job loss since December 2020. Wage growth also cooled to 3.7% year on year. All the above data supported a more benign and dovish approach towards Fed hikes, something that obviously is not reflected in the current probabilities for a September rate move.

In terms of market moves, US equities traded in choppy but resilient tone. The S&P 500 slipped from its August records towards the 7700-area amin the yield surge. Dovish comments from Fed governor Waller re-ignited the positive upward move in equity indices with technology sectors outperforming. On rates, the moves were abrupt as the US 10yr government bond yield touched 4.82%, its highest level since late 2023. The German 10-year government bond followed through at 3.25%, a level unseen since 2011, as hot Spanish and German inflation prints reinforced ECB hawkishness. Gold benefited from the eventual yield pull back post Waller comments, trading above $4450, while EURUSD firmed as the dollar softened (1.1625).

On the corporate side, post NVIDIA’s record results, we continue seeing a variety of companies increasing forward guidance to 2027. Open AI and Anthropic listings remain anticipated later in 2026.


Looking ahead…

Full attention now turns squarely to the August CPI report on the 11^{th of} September. After the soft data we have seen so far, the CPI number becomes the decisive input for the FOMC’s September decision. The ECB meets the same week, where a further 25bps hike is fully priced in. With equities only slightly lower from the August record highs, market breadth having thinned notably, and September’s historically weak seasonality factor, the path of least resistance seems to be heavily correlated on that inflation print and whether the Middle East conflict stays contained.

Written by: Michael Konstantinou, Head of Portfolio Management