Market Roundup - August 2026

Resilient Wall Street and Main Street

August was characterised by strong US growth activity against a backdrop of stubborn and elevated inflation. In his remarks at the annual Economic Policy Symposium in Jackson Hole, US Fed Chair, Kevin Warsh, acknowledged this trend, noting that the American economy had showed remarkable resilience and strength in holding up to various shocks.

In the same speech the Reserve Bank chief conceded inflation in the US had been persistently above the Bank’s target for the last 65 months. Following his comments and resolve to deliver on their price stability mandate, markets moved from expecting eventual monetary policy easing to pricing a greater probability of US interest rate hikes.

Similarly, data for Eurozone inflation also accelerated, lifting to 3.3% in August, largely driven by higher energy costs. The move away from the European Central Bank’s 2% target, increased expectations of further tightening from the ECB, and fed into the broader "higher-for-longer" narrative surrounding global interest-rates.

The shift in expectations pushed Treasury yields higher, while global bond markets sold off as investors reassessed the potential path of interest rates. In contrast the change in sentiment knocked some interest-rate sensitive stocks, however, sharemarkets generally finished August higher buoyed by robust corporate earnings and underlying sector strength.

The month saw tentative signs of a softer US labour market as July payroll numbers unexpectedly fell by 23,000, and the preceding two months employment gains were revised down by over 100,000. A weakening labour market (the States’s economic engine) would provide the Federal Reserve some flexibility in how aggressively they would need to tighten.  

Increasing Tensions

Renewed Iranian conflict and uncertainty around the Strait of Hormuz pushed oil prices higher towards the end of the month. Steeper energy prices added to inflation risks, particularly for Europe and other import-dependent economies, and further contributed to expectations of rising interest rates globally.

Trade tensions between the US and Canada spiked over the month as talks to secure a comprehensive trade agreement broke down. Washington imposed steep tariffs on Ottawa, while Canadian Prime Minister, Carney, announced they would match Washington’s levies dollar-for-dollar, leaving both nations facing higher prices on a range of affected goods.

Elsewhere, investors remained concerned about China's relatively weak domestic demand and the increasing reliance on exports for growth. This contributed to uncertainty around global manufacturing and commodity demand, while Beijing's contentious trade surplus and the prospect of additional trade restrictions added to geopolitical and supply-chain risks.

Over the course of August, the US dollar weakened against a basket of major currencies, while gold rose nearly 10%. The divergence between the two safe-haven assets reflected strong demand for alternatives to the USD amid concerns over high government borrowing levels and fiscal sustainability, as well as geopolitical risks.

The key market debate entering September centres on whether persistent inflation and energy-price pressures will force Central Banks to tighten policy further, and to what extent, or whether weakening labour-market conditions will ultimately support a less restrictive stance. Simultaneously, further geopolitical shocks threaten to upend any progress.