Week ended August 29, 2025

Four things stood out in a rather uneventful and slow late August week bracketed by holidays in the UK (last Monday) and the US (Labor Day tomorrow).

• Nvidia earnings:  NVDA released its 2Q2026 results on Wednesday after the close, and beat top- and bottom-line consensus analysts’ expectations.  However, investors believed that the company’s forward guidance was too conservative to support the current rather elevated stock price (26.9x price-to-sales, 40x forward P/E), as the shares sold off modestly post-earnings, then fell more sharply on Friday.   Fortunately, NVDA’s earnings were good enough not to kill the current AI narrative that is fuelling tech shares, pulling the S&P 500 index to a new record high every few days.  As an aside, NVDA’s market cap is $4.4 trillion, which is 8% of the S&P 500.  The market value of the company is more than the entire market cap of all publicly listed shares in the UK ($4.1 trillion equivalent), France ($3.2 trillion equivalent), or Germany ($2.9 trillion equivalent).

  
  

• Personal Consumer Expenditures for July:  PCE data for July (very lagged) was released on Friday.  The personal consumption data suggested that US consumers remained strong in July, with personal expenditures growing 0.5% MoM (July-from-June), and personal income growing 0.4% MoM.  The PCE index – the Fed’s preferred measure of inflation – grew more or less in line with expectations, with headline PCE increasing 0.2% (MoM, July-from-June) / 2.6% YoY, and the more important core inflation increasing 0.3% MoM / 2.9% YoY.  Inflation remains well-above the Fed’s target, which is affecting long-term inflation expectations and keeping pressure on intermediate- and long-term UST yields.

• French government teetering on collapse (again):The French government led by Prime Minister François Bayrou (appointed Dec 2024, centre-right party) is under pressure again, with the National Assembly unwilling to agree to the 2026 budget his party has presented. As a result, Mr Bayrou called for a vote of confidence in his party by the National Assembly on September 8th, which he is expected to lose. Mr Bayrou and his party have virtually no support from the far left or the far right. In early August, he presented a 2026 budget to reign in expenses and address the deteriorating fiscal condition of the country. The turmoil and political uncertainty weighed particularly heavy on French bonds and equities early in the week, with the 10-year French government bond yield (3.51%) closing the week at 79bps over the “EU gold standard” 10-year government bond yield (2.72%) of Germany. As an aside, Mr Bayrou is the 4th prime minister of France since 2020.

  
  

• The Trump Administration, what happened last week:   Although as usual President Trump was all over the place last week on various initiatives, the two things that caught the eyes of investors were Mr Trump’s ongoing threats to the independence of the Federal Reserve, and – at the end of the day on Friday – the ruling by the U.S. Court of Appeals for the Second Circuit which upheld an earlier (May) ruling by the Court of International Trade that the reciprocal tariffs imposed by the administration were illegal. 

  
  

  • Fed independence: Trump’s ongoing threat to revamp the Fed to his liking is continuing to weigh heavy on intermediate- and long-term US treasury yields, one of several reasons I do not like duration at the moment.  Mr Trump tried to sack Fed governor Lisa Cook early in the week for cause, but she is pushing back by suing the administration and taking the matter to the courts.  What Trump and his merry men completely fail to grasp is that no matter what the Fed does, the US Treasury market will be the ultimate boss as you move out the maturity curve.  30 UST yields ended the week higher as the drama continues to play out. 

    
    

  • Reciprocal tariffs ruled unlawful:  The reciprocal tariffs will stay in place for the time being, until mid-October, to allow the administration to elevate the case to the Supreme Court.  On the surface, saying that the trade deficit – which has been in place since 1975 – is a national emergency, thereby giving the president rather than Congress the ability to levy tariffs, seems  ridiculous.  (The obvious question is why didn’t Trump run this through Congress since his party controls both the House and the Senate?  Go figure.)  You never know what the Supreme Court, which leans right, might decide on this important matter.  In the meantime, reciprocal tariffs will stay in place although I doubt there will be much negotiation of new trade deals in the interim as counterparty countries await the ultimate outcome.  This creates another layer of uncertainty in financial markets.   A simple and short explanation of the ruling and implications can be found on the BBC website here.

Market summary / tables

Global equities were mixed last week, with European equities being the worst performing and Chinese equities the best.  YtD through the end of August, all global indices tracked by EMC are firmly positive, led by emerging markets, Chinese and U.K. stocks.  

U.S. stocks slid sideways most of the week, with only the small cap Russell 2000 eking out a small gain.  

U.S. Treasury yields were lower at the short end of the curve, as investors gear up for a likely 25bps reduction in the Fed Funds rate at the mid-September FOMC meeting.  However, the 30-year UST yield moved higher as the yield curve continues to steepen because of fears over elevated long-term inflation.  Corporate credit spreads were mixed, with U.S. high yield spreads better again even as European credit spreads widened, largely attributable to concerns about political instability in France.  

Gold gained ground, closing the week above $3,500/oz as underlying economic and valuations concerns continue to encourage investors to seek some component of safety in their portfolios.  Bitcoin was sharply lower for reasons that I cannot explain, which is normally the case as far as movements in the benchmark cryptocurrency.  

Below are updated tables for indices and asset classes tracked by EMC.

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