The US President's attacks on the independence of the US Federal Reserve (Fed) intensified again in August. In addition to continuing to exert pressure on Jerome Powell with the aim of achieving the highest possible interest rate cuts as quickly as possible, Donald Trump wants to dismiss Lisa Cook, who has been on the Fed's Board of Governors since 2022. USD interest rates reacted surprisingly tame and are trading at similar levels at the longer end as at the beginning of the month. Tariffs also continued to be imposed at a brisk pace in August. The US tariff on Indian exports to the US is now 50%, raising the effective global tariff rate of the US to over 18%. The first effects of the tariffs imposed are gradually becoming apparent in US economic data. While monthly US tariff revenues remained below USD 10 billion through March 2025, they have since risen sharply, reaching a good USD 28 billion in June. This means that just under USD 94 billion in tariff revenues have been generated so far for 2025, which corresponds to about 5% of the budgeted deficit for 2025. An interesting discrepancy can also be observed with regard to US inflation: while consumer prices rose by 0.2% in July, as expected by the market, producer price inflation was 0.9%, contrary to the expected 0.2%. Even if they were not the sole driver, tariffs are likely to have played a role here as well.
After the US imposed tariffs of 39% on Swiss exports to the US at the beginning of August, the Swiss stock market could have been expected to react accordingly. Although some heavily affected stocks did suffer price losses, the Swiss Performance Index closed the month up 2.3%. The main drivers behind this were the performance of heavyweights such as Nestlé, Novartis and various financial stocks. The American S&P 500 and Japan's Topix even reached new all-time highs during the month, and the Euro Stoxx 50 is currently not far behind. We view this development with a certain degree of scepticism, as there is no shortage of risks for the stock markets at present: tariffs and the erratic behaviour of the US government are creating a new situation for equity investors on an almost daily basis. Doug McMillon, CEO of US retailer Walmart, recently said that the impact so far had been well managed. At the same time, he warned that filling up inventories at prices after the introduction of tariffs would cause retailers' costs to rise week after week and that no quick solution was in sight for the coming quarters. This is not good news for American consumers. In the second quarter, lower imports still supported GDP growth, but the combination of high valuations on the US stock market, persistently high inflation and potentially weak consumption carries the risk of price setbacks. We therefore consider hedging to be sensible in the current environment.
The meeting of the US Federal Reserve at the Jackson Hole Symposium brought some exciting twists and turns. While interest rate cuts have always been ruled out due to inflationary trends, the Fed is no longer ruling out an easing of monetary policy if the US labour market continues to weaken. This is remarkable in that current consumer price inflation figures remain above the 2% target and the recently published producer price inflation rate does not rule out a further rise in consumer prices. In contrast to long-term US interest rates, which remained at roughly the same level as at the beginning of the month, short-term US interest rates fell. This resulted in a steepening of the US yield curve. In Europe, France's 10-year interest rates are now only slightly below those of Italy and higher than those of Spain. The US dollar index continued its decline in August, after a breather in July, and is now trading at 97.67, or 10% lower than at the beginning of the year. The Swiss franc also appreciated against the US dollar, but lost 0.9% against the euro. Precious metals were once again among the strongest performers in the commodities sector. The price of gold is heading for an all-time high and silver is flirting with the USD 40 mark.
Since hitting its low for the year in April in response to Liberation Day, the S&P 500 has risen sharply again in local currency terms, gaining 10.8% over the year so far. In Europe, the Euro Stoxx 50, the Swiss Performance Index and the FTSE 100 are up between 9.2% and 15.6% for the year, also in local currency. While valuations in Europe remain at a comparatively low level – in contrast to the US – it should be borne in mind that a trade war of this magnitude was not expected at the beginning of the year. Compared to the beginning of the year, we take a rather critical view of the current economic situation and have therefore become more cautious in view of the impressive price gains. We have managed the equity allocation through rebalancing. We are sticking to our asymmetric hedges and would unwind them in the event of major setbacks and buy additional equities in return. Broad asset diversification with a focus on real assets remains at the core of our strategy.