Monthly Market Perspective- August 2026

Throughout August, markets operated in an environment characterised by a gradual shift away from predominantly geopolitical risks toward more structural themes related to sovereign bond markets, public debt sustainability and global technological competition.
Investor attention increasingly moved from oil-price dynamics and inflation toward government-bond yields, the role of the US dollar and the ability of major economies to finance public spending, defence commitments and technological investment simultaneously.
Against this backdrop, the bond market remained the primary barometer of the global macroeconomic balance.

During the month, a growing divergence emerged between central-bank communication and investor expectations.

Federal Reserve

The Federal Reserve maintained a cautious but restrictive stance, continuing to emphasise that bringing inflation back toward the 2% target remains its primary objective.
However, market expectations regarding future Fed actions shifted repeatedly during the month, generating significant volatility at the short end of the yield curve.
The Jackson Hole symposium reinforced Kevin Warsh’s commitment to preserving the Fed’s credibility while keeping the possibility of further rate hikes on the table should inflation fail to moderate sufficiently.

European Central Bank

The ECB also continues to operate in a challenging environment characterised by moderate growth and inflation still above target.
Attention remains focused on underlying inflation trends and on the indirect effects of possible energy-related shocks or higher global bond yields.
Overall, markets continue to price a “higher for longer” interest-rate environment.

August highlighted the growing importance of technological competition between the United States and China as a key medium-term growth driver.

United States

The US economy continues to benefit from substantial investment in artificial intelligence and digital infrastructure.
However, investors have increasingly begun to question the financial sustainability of the current investment cycle. Higher leverage among major technology companies and growing competitive pressure from Chinese AI models have raised concerns about the long-term sustainability of current earnings-growth expectations.

Europe

Europe continues to display a more moderate economic profile, supported by gradually improving inflation dynamics but constrained by slower growth compared with the United States.
Higher sensitivity to sovereign-bond yields and lower exposure to the main beneficiaries of the AI cycle leave the region relatively more vulnerable.

One of the most significant developments during August was the renewed focus on the term premium, namely the additional yield investors require to hold long-duration bonds.

Fixed Income

Higher government-bond yields were driven less by inflation expectations and more by structural factors, including:

• rising public debt;
• increased sovereign issuance;
• a sharp increase in technology-sector corporate bond issuance;
• growing competition for capital between governments and corporations.

Against this backdrop, the long end of the curve continues to display signs of fragility, while real yields remain at historically elevated levels.
Portfolio positioning therefore continues to favour:

• floating-rate instruments;
• inflation-linked securities;
• selective long-duration exposure.

One of the most important events of the month was the coordinated intervention by the United States and Japan in foreign-exchange markets.
The operation highlighted policymakers’ efforts to limit instability in bond markets and challenged the narrative of a structurally weaker US dollar.
More broadly, the concept of financial self-reliance is becoming increasingly important.
In the United States, as previously observed in Japan, efforts are emerging to increase the share of public debt absorbed by domestic investors and reduce dependence on foreign capital.
This approach could help stabilise the Treasury market, although it does not eliminate the longer-term challenges associated with expanding public debt.

Artificial intelligence remains one of the most important market themes, but the discussion is gradually shifting from revenue growth toward investment sustainability.
Rising leverage within the technology sector, increased corporate bond issuance and the emergence of new financing structures linked to digital infrastructure are introducing additional layers of financial complexity.
The key issue increasingly becomes whether AI-related investments can generate returns that exceed the rising cost of capital in a higher-yield environment.

August confirmed a gradual shift in the market narrative.

In particular:

• investor focus has increasingly moved from inflation toward debt sustainability and yield dynamics;
• the bond market has become an even more central component of the macro-financial framework;
• the US dollar continues to play a stabilising role within the global financial system;
• technological competition between the United States and China is becoming a key driver of growth and capital allocation;
• the financial sustainability of the AI investment cycle is emerging as one of the most important themes to monitor over the coming quarters.

In this environment, portfolio management requires a disciplined and flexible approach, with close attention to monetary-policy developments, real yields and financing conditions within the technology sector.