Monthly Market Outlook August 2025

The tariff deadline has passed with August 1 and will not be delayed further. Now, the market’s focus will shift away from the details of the tariffs and toward incoming economic data and central bank responses. 

Starting in August, trading returns to a more typical environment but this “normal” may come with plenty of volatility. 

Macro View 

Trump had postponed the tariffs multiple times since April, but after reaching the final August 1 deadline, he ended the delays with a sweeping round of new tariffs. Canada was hit with a 35% rate, Switzerland with 39%, and most other countries with 15%. 

Canada, Mexico, China, the EU, and Japan are the United States’ most important trade partners, accounting for the majority of total U.S. imports. While the EU and Japan managed to reach deals with the U.S. for 15%, they came at the cost of significant concessions. It is clear that the U.S. emerged as the dominant party in these negotiations. 

Under the deal, the EU agreed to remove tariffs on U.S. goods, purchase $750 billion worth of American energy products, and invest $600 billion in the U.S. Japan committed to buying 100 aircraft, rice, and other agricultural goods, and to invest $550 billion in the U.S. However, Japan will only receive 10% of the dividends from those investments, with the remaining 90% going to the U.S. 

While these deals are highly favorable for the U.S. on paper, the stagflationary risks are now more real than ever. 

Inflation is not moving toward the 2% target at all. Both PCE and CPI data clearly indicate that inflation is trending toward 3%, despite a decline in shelter inflation, which carries a high weight in all major inflation measures. 

As Powell noted in the FOMC press conference, goods inflation is starting to heat up while services inflation is moderating. However, even this moderation is at risk. The delayed effects of earlier tariffs, combined with the impact of newly imposed higher tariffs, are likely to push inflation higher over the next few months, possibly keeping it near or above 3%. 

This creates a difficult environment for the Federal Reserve. Even if the labor market begins to flash warning signs, the Fed will struggle to justify rate cuts in the face of persistent inflationary pressure. 

While inflation is gradually heating up, more concerning signals are coming from the labor market. With major downward revisions to May and July data, the three-month average of nonfarm payrolls has dropped to just 35k well below the level needed to keep the unemployment rate stable. 

JOLTS figures have also been steadily declining since 2022. One of the most troubling signs, however, is the recent drop in the labor force participation rate. This sharp decline has kept the unemployment rate low, concealing underlying weakness in the jobs market. 

Over the past thirty years, excluding the 2008 financial crisis and the 2020 COVID-19 shock, the participation rate has only fallen this sharply six times within a three-month period. 

The Federal Reserve is approaching a critical decision point where members will need to weigh support for employment against the need to control inflation. As Bostic said last week, inflation is currently further from equilibrium than the labor market. For now, the probability of a rate cut in September remains close to fifty-fifty in our view. 

Last week’s payrolls data increased recession concerns in the eyes of the market. As a result, a rotation out of stocks and into bonds began, with investors seeking the safety of current high yields. However, these yields may not be as safe as the market believes. 

The data was significant enough for the Federal Reserve to take notice, but not strong enough to justify a rate cut at this time. Fed members will likely want to see more evidence before determining the depth of weakness in the labor market and reassessing the risks to inflation. 

Fortunately, there is plenty of data scheduled between now and the September meeting. Our base case of one rate cut in 2025 and four cuts in 2026 remains unchanged, but it is now at risk following the recent payrolls revision. Two cuts in September and December have now entered the realm of higher possibility. 

Composite PMI data continues to show that the United States maintains a clear edge over most developed economies. The reading of 54.6 reflects a strong increase in economic activity. Updated figures are expected in the first week of August. Given the recent weak jobs report, ISM Services and updated U.S. Composite PMI will take on added importance. 

The second-quarter U.S. GDP came in above expectations, supported by stable spending and consumption. Overall, the data suggests there is not yet enough evidence to justify panic about the health of the economy. 

In the Eurozone, growth remains slow. The 0.1% expansion in the second quarter was slightly above expectations. The recent trade deal with the United States was seen as a major humiliation for the EU, but it has bought the bloc some time to reevaluate its economic model and invest more in technology and defense to reduce its dependence on the U.S. In August, France may draw attention due to rising political risks, while Germany remains under the spotlight for economic concerns. Still, with the right policy choices, the EU could recover strongly over the next three to five years. 

China, meanwhile, has used the United States’ dependence on rare earths to its advantage, softening some of the pressure from tariffs and AI chip restrictions. Although the new tariffs will have a significant negative impact on China’s economy, the severity remains uncertain. So far, China appears to be managing well enough to cushion some of the blow. 

Another area to watch is Japan’s bond market, particularly long-term yields. The recent defeat of Shigeru Ishiba in the upper house election increases the likelihood of more fiscal deficits at a time when inflation is rising and the Bank of Japan is transitioning toward quantitative tightening. The costly trade deal with the U.S. may calm some concerns, but the bond market is likely to remain tense. Given the importance of Japanese carry trades, this could have global implications. 

Central Bank Meeting Calendar 

Technical View 

The main theme for the U.S. 10-year government bond yield has not changed. The flat movement between 4.10 and 4.70 continues. While the large downward revisions in payrolls data have caused some short-term pressure, this will likely remain noise unless the yield closes below 4.10 for two or three consecutive days. 

However, the last three peaks have each been lower than the previous one, which may be an early signal that downward pressure is starting to build. 

Brent crude briefly rose above the 70–72 zone, but the move proved to be temporary. The initial upward push was driven by strong U.S. GDP and other positive economic data. However, recent downward revisions to payrolls caused Brent to fall back below 70. 

A shift in Trump’s stance toward Russia may have contributed to the brief upward pressure, but several headwinds remain. Rising OPEC output, ongoing tariff impacts, and the expected global economic slowdown are likely to keep Brent within the downward trend channel that has been in place since 2022. 

Precious metals enjoyed a rally in the first half of July but gave up much of their gains in the second half. The main theme was Palladium attempting to catch up with early gains in Platinum, rising 9.41% for the month. Platinum, on the other hand, gave back earlier gains and finished the month in negative territory. 

Silver continued to close the gap with gold, with both ending the month in positive territory. 

Gold is currently trading below its daily uptrend, but Friday’s surge has brought the price back to retest the broken trendline. It will be important to see whether gold can regain a foothold above this level. If it fails, a move toward the 3150–3200 zone is likely. However, the retest phase may continue for some time before any decisive downward break. 

On the other hand, the distance between the trendline and key resistance levels at 3450 and 3500 is narrowing. If gold recaptures and holds above the trendline, it could open the door for a move to new highs. 

The first two weeks of August will be critical in determining the next direction for gold. 

Silver recently reached the upper boundary of its two-year trend channel. After testing it twice, the price was rejected and fell back to near 36. For now, the short-term trendline is holding the downside, and as long as silver stays above 36, this support may remain intact. A break below could open the door for a retest of the 34.85 level. 

On the upside, the 38 level will be a key resistance to watch in August. 

Silver still has room to catch up with gold and may continue to outperform it in the coming month. 

The Dollar Index had a busy July. First, the long-term upward trend from 2011 was tested, prompting a strong bullish reaction that broke the sharp downtrend from the 110 top. After a successful retest of that trend, the dollar rallied again, reaching the former key support zone at 99.60–100.80. 

This zone is now acting as resistance and will be a critical level for the dollar going forward. The first attempt to break through was rejected following the payrolls data. 

With a wave of important data ahead, uncertainty remains high. Both bulls and bears have valid reasons to hold their positions. The first two weeks of August will be crucial for determining the dollar’s next direction. 

Stock markets had a strong run through most of July, but gains faded in the final two trading days. The MSCI World Index ended the last 24 working days flat, mirroring similar performance in the Nasdaq and S&P 500. 

The DAX, which had been positively diverging in recent months, reversed course and dropped 2.22%. The Dow also declined by 1.54%, with manufacturing data still showing signs of weakness. 

In August, traders should watch closely to see whether the market’s reaction to the weak payrolls data shifts toward renewed optimism for Fed rate cuts. 

Prior to the last two sessions, the VIX Index had fallen to around last year’s average of 15.60, supporting the upward trend in the S&P 500. However, the recent spike could become a negative signal if the index approaches 30 in the first few days of August. 

The 23.50 level could be the first trigger to turn cautious, while a move above 30 would suggest that the pullback is turning into panic. Stock traders should closely monitor daily closes in the VIX for signs of shifting market sentiment. 

The S&P 500 broke above the 6170 level in the final days of June, and bulls rode that momentum up to the previously broken trendline. However, momentum gradually faded, accompanied by weakening market breadth. 

The downward revision to payrolls data triggered a break of the wedge formation, but not all is lost. If the 6170 support level holds, the S&P 500 could still push to new highs in August. On the other hand, a break below this support could intensify panic and might drive the index below the 6000 mark. 

The first week of August may be critical in determining the market’s next direction. 

In June, currencies experienced wild swings due to the fast-changing direction of the U.S. dollar index. EURUSD recovered most of its earlier losses on the first day of August, while GBP diverged sharply, falling 2.46% against the dollar. 

JPY was also among the weaker performers, but higher yields could accelerate its recovery in August. CHF may see increased volatility following the 39% tariff imposed by the U.S., which could significantly impact Swiss markets this month.

EURUSD broke its sharp upward trend in July and, after a retest, fell to the 23.6% Fibonacci retracement level at 1.1430. This level has previously acted as both resistance and support, making it a key technical zone. 

There has been an upward reaction from this level, but if the dollar continues to strengthen, the next major target on the downside could be the 1.1185 support level. 

After moving sideways between 140.50 and 148.70 for some time, the technical outlook for USDJPY has shifted to a slightly bullish trend channel. The brief move above 150 ended in just one day following the payrolls data. 

The trend could continue into August, with the range likely limited between 145 and 152 until the final two weeks of the month. The dollar index and Japan’s long-term bond yields will be key factors to watch for USDJPY direction.