Steering Through Market Volatility

Macro

In August 2025, many significant events have happened from the 1^st August 2025 Tariff deadline to the deadly protest which happened in Indonesia. Countries like Switzerland was caught by surprise by President Trump’s imposition of a 39% tariff rate compared to the 15% tariff negotiated by the neighbouring European Union. [1]

In the U.S., it has seen its economy expanding at a slightly faster pace than initially estimated with its real Gross Domestic Product (“GDP”) rising to 3.3% in Q2 2025 due to the rebound in business investment and significant boost from trade, reversing a decline in Q1 2025. Additionally, the initial jobless claim also fell by 5,000 to 229,000 below the expected 230,000 with continuing claim also dropped to 1.95 million for the week ending August 2025. These shows that the U.S. economy may remain resilient despite the tariffs taking effect especially with the downward revision in continuing claims. [3]

In the eurozone area, it has seen its manufacturing sector expanding for the first time in three (3) years, with its Purchasing Managers’ Index (PMI) rebounding to 50.7 in August 2025, driven by domestic demand and new orders which has sparked optimism about the region’s economic trajectory. Historically, this indicator has shown strong correlation of 0.87 with Eurozone’s GDP growth since 2000 which means this rebound could signal a potential upturn in eurozone economic activity. However, eurozone’s recover may remain fragile with structural challenges such as Germany’s weak manufacturing sector which has been in contraction for 35 months, U.S. tariffs on EU steel and aluminium, and more persisting. [4]

In Asia, China is still facing a deflation saga with the price decrease becoming more widespread as compared to its 2015’s deflation situation. Beijing’s recent push for the “anti-involution” campaign to curb overcapacity and overcome this saga still appears to be missing a stimulus spark which in turns could hurt the economy instead of bringing inflation back. Furthermore, with the high debt of over 300% of its GDP and relatively low main policy rate at 1.4%, the China’s central bank may not have much room to cut its rates to boost spending. [6]

In Indonesia, it recently faced a tough political climate with protest over rising cost of living, lawmaker’s pay and police violence which has hurt investor sentiment of its economy. However, this event is unlikely to challenge the underlying growth story for Indonesia and is still on track for 4.9% economic growth for 2025 as it still ranks among the more stable emerging markets globally. [7]

Equities

In the equities space, it continues to set record high with the S&P 500 crossing the 6,500 marks for the first time. However, it is expected to experience a pull back in the near term, but the long-term upside trend is still intact. This is because, historically, September has been the weakest month for U.S. stocks with S&P 500 fallen 56% of the time in September by an average of 1.17% from data going all the way back to 1927. There are also many events such as U.S. inflation data, FOMC meeting in the mid of September, and more which could turn the market narrative upside down in the short term. [9]

In Europe, European stocks may see upside potential, subject to prevailing macroeconomic conditions.

Additionally, the relative P/E ratio of European Monetary Union (EMU) also referred to as Eurozone equities is decreasing against U.S. equities, making it attractively valued and together with investor’s growing desire to diversify from U.S. exposure due to dollar weakness and concentrated positions in technology are expected to further support the upside trend. However, the uncertain political environment in France could pose a risk to the European stock market. [11] Defensive stocks in particular may outperform cyclicals stocks in the near term due to short-term headwinds.

In Asia, the most notable thing in the market is the Chinese onshore market. The mainland’s CSI 300 benchmark index traded flat in 1H 2025 but posted double-digit gains since end of June 2025 of 14.3% so far this year (as of 29^th August 2025), higher than the S&P 500, Topix, and Stoxx, in local currency terms. [13] This is mostly driven by liquidity as There Is No Alternative (“TINA”) with the low interest rate environment and near-record low bond yields instead of improved economic fundamentals. [14] However, measures from valuations to technical indicators and margin financing which has risen to 2.1 trillion yuan just about 6% off the peak in 2015 before a leverage-fuelled market bubble burst are a cause for concern that this uptrend might not be strong enough to continue especially with the weak economic environment in China. [15]

Fixed Income

In the fixed income space, September historically has also been seen as a bad month for longer-maturity bonds as it is often when monetary policy takes a sharp turn and also due to the low issuance of bonds during July, August, and post-mid-November. Government bonds globally with maturities of over 10 years posted a median loss of 2% in September which is also the worst monthly performance of the year. [17]

In the U.S., the market is expecting 2 rates cuts this year with a 25-basis point rate cut by October and a second one by year-end after Jerome Powell, the head of U.S. central bank, signalled a potential rate cut in September at the annual Jackson Hole meeting. [18]

The U.S. treasury yield curves have steepened meaningfully and is expected to continue to steepen further. [20] Intermediate maturities bonds in particular may deem attractive as they benefit from steeper curves, have sufficient duration to profit from lower yields while withstanding against any short-term interest rates movement. [21]

In Europe, the European Central Bank has kept rates unchanged in its July meeting but is expected to deliver a final rate cut at the end of the year as the policymakers access the impact of trade disruption caused by President Trump. [22] Based on current market insights, a selective approach may be best suited  for Europe fixed income market focusing on building a “core” allocation to more defensive and domestically oriented issuers with an average of duration of 3-7 years. [23]

Foreign Exchange (FX)

The greenback has continued to weaken and this weakness is expected to continue due to a combination of cyclical factors such as U.S. moderation and tariffs as well as structural factors such as policy uncertainty. Furthermore, the inflation impact from tariffs are differentiated with the U.S. experiencing inflation while the rest of the world to experience deflation which would continue to weigh on real policy rates in the U.S., reducing the demand for the greenback. [25]

In Europe, the euro is expected to remain strong with the euro-favourable development such as the German federal budget which indicates more expansionary than expected fiscal policy and is likely to support economic growth and together with the ECB expecting to end its rate cuts soon, it supports the bullish trend for EUR/USD. [26]

In Asia, Chinese renminbi has appreciated to its strongest level against the dollar since President Trump won the election in November last year as Beijing signals to the market that it is willing to allow a gradual strengthening in its currency. With China’s huge trade surplus of about $685.5 billion in the first seven month of 2025, the currency looks undervalued on traditional metrics and could potentially strengthen with this signal. [27]

Hedge funds also appear starting to bet that the Yen is poised to make a bullish breakout with trading volume of dollar-yen put options was quadruple that of call options on 26^th August 2025. There are plenty of drivers of possible yen gains against the dollar such as the political turmoil in France resulting in flight to safe haven currencies like Yen, potential Fed rate cut, and more. [29]

Ready to take the next step ? Connect with WRISE’s advisors to explore how we can help you preserve, protect, and grow your wealth through personalised strategies that stand the test of time.

Source:

[1] Despite US tariffs, Switzerland still controls its own destiny | Lombard Odier
[2] Gross Domestic Product, 2nd Quarter 2025 (Second Estimate) and Corporate Profits (Preliminary) | U.S. Bureau of Economic Analysis (BEA)
[3] 3.3%! US economic growth revised upward, initial jobless claims remain strong | Bitget News
[4] Eurozone Manufacturing PMI Rebounds: A Green Light for European Equities?
[5] Xi Overcapacity Fight Leaves Economy Vulnerable Without Stimulus – Bloomberg
[6] Xi Overcapacity Fight Leaves Economy Vulnerable Without Stimulus – Bloomberg
[7] Indonesia’s stocks fall, currency weakens as protests dent sentiment and Indonesia’s economy remains resilient amid global strains | Vietnam+ (VietnamPlus)
[8] September Is Usually the Weakest Month for Stocks – Bloomberg
[9] September Is Usually the Weakest Month for Stocks – Bloomberg
[10] J. Safra Sarasin Economic Outlook & Investment Strategy
[11] Goldman, JPMorgan Say European Stocks Are Set for Year-End Gains – Bloomberg
[12] China’s stock market outpaces global peers as local investors pile in – Financial Times
[13] China’s stock market outpaces global peers as local investors pile in – Financial Times
[14] China Stocks Are Sending Warning Signs on Liquidity-Driven Rally – Bloomberg and China’s stock market outpaces global peers as local investors pile in – Financial Times
[15] China Stocks Are Sending Warning Signs on Liquidity-Driven Rally – Bloomberg
[16] World’s Long-Dated Bonds Face a Traditionally Terrible Month – Bloomberg
[17] World’s Long-Dated Bonds Face a Traditionally Terrible Month – Bloomberg
[18] Short-Dated Treasuries Fall as Strong US Data Dents Rate Bets – Bloomberg
[19] US – Treasury Yields vs. Fed Funds Rate | US Treasury Bonds | Collection | MacroMicro
[20] J. Safra Sarasin Economic Outlook & Investment Strategy and US – Treasury Yields vs. Fed Funds Rate | US Treasury Bonds | Collection | MacroMicro
[21] J. Safra Sarasin Economic Outlook & Investment Strategy
[22] European Central Bank to Wait Until December to Deliver Next Interest-Rate Cut – Bloomberg
[23] Put cash to work | UBS Global
[24] DOLLAR INDEX SPOT (DXY) Spot Rate – Bloomberg
[25] Will the Dollar Regain its Strength? | J.P. Morgan Research
[26] Will the Dollar Regain its Strength? | J.P. Morgan Research
[27] Chinese renminbi strongest against dollar since Trump’s election win – Financial Times
[28] JPY/USD: Hedge Funds Are Betting Yen Is About to Make a Bullish Breakout – Bloomberg
[29] JPY/USD: Hedge Funds Are Betting Yen Is About to Make a Bullish Breakout – Bloomberg