August Issue 2026

Equity Snapshot

United States

US equities moved higher in August. Wall Street rallied early on as tech stocks surged and oil prices eased on optimism around Oman-Iran negotiations to reopen the Strait of Hormuz. However, uncertainty over the strait was compounded by Israel’s rejection of US President Donald Trump’s peace plan for Gaza. Subdued inflation data drove the main indices to fresh highs mid-month, as worries about a September rate hike from the Federal Reserve (Fed) faded. However, the US public debt burden touched to a fresh high, surpassing USD 40 trillion and sending 30-year bond yields soaring to levels last seen in 2007. However, the main indices rebounded briefly after the US Treasury Department doubled its buyback programme for longer-dated bonds to calm volatility. Elsewhere, the Senate approved a stopgap funding bill to avoid another US government shutdown in the run-up to the mid-term elections in November. Meanwhile, mounting trade war tensions rattled sentiment after US-Canada talks collapsed, with Washington slapping 50% levies on USD 20 billion of Canadian goods and Ottawa announcing retaliatory tariffs. Markets were buffeted ahead of US Treasury Secretary Scott Bessent’s “Operation Economic Outcast” announcement, a sweeping sanctions package targeting Iran and its trading partners. However, stocks subsequently rose after the measures proved less severe than initially feared before pulling back amid renewed tensions in the Gulf.

US economic fundamentals painted a weaker picture in August. US job creation figures unexpectedly fell, with non-farm payrolls data showing that the US economy shed 23,000 jobs in July – significantly lower than consensus estimates of an 80,000 increase. Additionally, the previous estimates for May and June were downwardly revised by a total of 103,000 jobs. US retail sales decreased 0.6% on a sequential monthly basis in July – the first decline since last October – and US exports fell to a four-month low of 0.9% in June. Meanwhile, the University of Michigan Consumer Sentiment Index eased from 55.2% in July to 51.0% in August. And while the unemployment rate crept down from 4.2% in June to 4.1% in July, the figures were flattered by a lower labour participation rate as more people left the labour force. More positively, the Federal Reserve Bank of Atlanta’s GDP, now running estimate of annualised economic growth for the third quarter, crept up to 4.6% from 4.3% previously.

Annual headline inflation fell from 3.5% in June to 3.4% in July, while the core figure, which excludes volatile food and energy prices, eased from 2.6% to 2.5% in July. Producer prices also slowed from 5.5% to 4.7%. Meanwhile, the core personal consumption expenditures prices index (PCE) – the Fed’s preferred inflation gauge, which strips out volatile food and energy costs – remained unchanged at 3.3% over the same period. While a prolonged conflict in the Middle East continued to strike upside inflationary pressures, last month’s subdued US inflation readings prompted investors to scale back near-term expectations of a Fed rate hike. In his debut speech at the annual economic symposium at Jackson Hole, Fed Chair Kevin Warsh expressed concerns about sticky inflation, leading market commentators to increase expectations of near-term Fed policy tightening.

Europe

European equities rose slightly in aggregate. The Euro STOXX 600 Index initially tracked Wall Street higher amid optimism around a deal to reopen the Strait of Hormuz to shipping traffic. Regional tech stocks also rebounded on positive earnings releases, further supporting risk appetite and driving the pan-European index to a fresh record high. However, gains were pared by rising crude prices as diplomatic talks stalled amid increasingly hostile US-Iran rhetoric and renewed strikes in the strait and the Red Sea. Markets were also rattled by escalating strikes against cargo ships carrying grain exports in the Black Sea and the continued Russian blockade of Ukrainian ports, raising concerns about global food supply chains and compounding inflationary pressures, with Moscow rejecting Kyiv’s offer of a shipping truce. Markets subsequently rose near month end after the economic impacts of Washington’s latest measures to tighten the screws of economic pressure against Iran and its trading partners were perceived to be softer than initially feared. However, global government bond jitters pared monthly gains, while renewed strikes in the Gulf were a further headwind. Lingering fiscal concerns and political uncertainty in France also weighed on risk assets.

Economic fundamentals were mixed. According to the latest figures, the euro-zone economy expanded by 1.0% year on year in the second quarter, in line with the initial flash estimate and up from 0.5% in the first quarter. Euro-zone exports were 14.4% higher than at the same time last year, with the bloc returning to a trade surplus after recording a deficit in May. Industrial production remained flat on a sequential monthly basis in June, equivalent to an annualised uptick of 0.1%, while unemployment crept up to 6.3%. Meanwhile, inflation in the bloc ticked up from 2.8% year on year in June to 2.9% in July, in line with consensus estimates and well above the European Central Bank’s (ECB’s) 2% target, reinforcing bets for another 25-basis-point rate hike at the ECB’s next meeting in September. Elsewhere, the Eurozone Economic Sentiment Index ticked up to a six-month high of 96.1 in August.

Asia

Asia ex Japan equities rallied in August with broad-based gains across the region. Korea and Taiwan led the advance as technology stocks rebounded from the previous month’s weakness. China equities were mixed. China A shares made modest gains, also led by tech and AI names. Offshore China markets were somewhat softer with the weak consumer environment weighing on sentiment. The latest China quarterly results season broadly reinforced trends that had been evident earlier in the year. In particular, AI-related capex remained strong as China’s AI infrastructure buildout continues. Major cloud service providers – notably the large internet platform companies listed in Hong Kong - signalled a further step-up in spending. While this weighed on share prices due to the near-term impact on profitability and cash flows, it also reflected growing confidence in long-term AI demand.

India continued its recovery. GDP growth in the three months to June was 7.8%, highlighting the resilience of the economy in the face of higher energy prices. There were also signs of improving economic momentum at the stock level with the latest reporting season delivering positive revenue and profit surprises across a wide range of sectors.

Bond

Global bonds delivered modestly positive returns, despite continued upward pressure on yields. A surprisingly soft US labour report raised questions over the strength of the US economy. However, inflation concerns lingered amid uncertainty around the Iran conflict and oil prices, while comments at the Jackson Hole symposium supported expectations of a possible September US rate hike. Worries over government borrowing and fiscal deficits also persisted. Corporate bonds closed higher, led by the high-yield segment.

Outlook

Markets continue to navigate a complex environment in which structural innovation intersects with an uncertain macroeconomic and geopolitical backdrop. Global growth remains resilient but uneven, while renewed energy pressures have complicated disinflation euro-area inflation rose to 3.3% in August, up from 2.8%, as European gas prices reached multi-year highs and crude climbed on renewed US–Iran hostilities. Central banks are therefore likely to remain data-dependent, with the path for policy rates increasingly uncertain and unlikely to be linear. Elevated public debt, trade fragmentation and geopolitical tensions continue to influence energy prices, supply chains, fiscal priorities and investor sentiment. We believe the long-term structural drivers linked to artificial intelligence, automation and digital infrastructure remain firmly intact: the AI trade is not over. However, the market is becoming significantly more selective. Hyperscaler capital expenditure remains critical but is increasingly a hygiene factor rather than sufficient evidence of competitive advantage. Investors now want proof that AI investment can generate sustainable revenue growth, margins and returns on capital.

Recent earnings have demonstrated genuine monetisation in cloud, enterprise platforms, advertising and developer tools, but also rising depreciation, energy requirements and operating costs. The next stage of the AI cycle should therefore be determined less by access to computing capacity and more by economic productivity. Agentic software, industrial automation and robotics are likely to become increasingly important, although enterprise adoption and workflow redesign may delay their earnings contribution. A consolidation phase across parts of the AI complex would not be surprising as markets reassess capital intensity, competitive positioning and the timing of returns. Near term, reduced visibility and elevated volatility should favour agile companies with pricing power, resilient balance sheets and durable free-cash-flow generation. We see scope for recoveries in high-quality names as leadership broadens, but the distinction between temporary weakness and structural disruption remains critical. Software offers diversification and participation in wider AI adoption, though not every apparent "AI loser" represents a genuine recovery opportunity.

Beyond the largest technology platforms, robotics, healthcare and biotechnology are increasingly coming to the fore. Quantum computing remains worth monitoring, although commercial timelines and valuations require discipline. Demand also remains robust across data infrastructure, semiconductors, electrification, automation, energy efficiency and grid resilience. Expanding data-centre capacity is making access to electricity, cooling and grid connections increasingly important, creating opportunities for companies that enable the AI ecosystem.

European financials enter H2 2026 on solid footing, with H1 earnings beating estimates on strong capital markets activity and stable credit quality, prompting upward guidance revisions. Having raised rates in June and held in July, the ECB now looks all but certain to hike again in September, as energy-driven inflation and climbing gas prices force a hawkish stance. This rising-rate path supports NIM expansion for banks even as it pressures credit costs, reinforcing the earnings upgrade cycle and constructive positioning. The H1 tailwind from strong capital markets activity is expected to continue into H2.

Defence retains strong medium-term visibility, supported by geopolitical risk, higher spending commitments and long-duration procurement pipelines. In Europe, fiscal expansion and industrial policy remain important catalysts around defence readiness, energy security, infrastructure, electrification and strategic autonomy. The region still faces uneven industrial momentum, energy sensitivity, fiscal constraints and regulatory complexity. Nevertheless, defence procurement, infrastructure modernisation and reshoring should support companies exposed to automation, semiconductor equipment, electrical infrastructure and power management.

Against this backdrop, we retain a constructive medium-term view on quality growth. The environment should reward companies that compound earnings through innovation, scale, pricing power and disciplined capital allocation rather than cyclical recovery or multiple expansion. The remainder of 2026 is likely to remain volatile, but this is a backdrop we would welcome. A broadening of leadership and renewed emphasis on fundamentals should favour strategies anchored in quality, with disciplined stock selection the key.