Markets in August 2025 were shaped by a complex mix of monetary policy expectations, geopolitical tensions, and fiscal developments. Despite rising risks, equity markets continued to climb, driven by investor confidence in central bank support and fiscal stimulus.

Data going back decades shows that, on average, September is the worst month for US stocks, and some investors are bracing for another bumpy ride this year.

Tariffs Are Starting to Hit American Consumers

American shoppers are about to feel more pressure on their wallets as rising inflation is increasingly linked to tariffs. Up until now, many US companies have been covering most of the extra costs from President Trump’s tariffs, but that is changing. Businesses are beginning to pass those costs on to customers, which is expected to push inflation higher.

Goldman Sachs expects the Fed’s preferred inflation measure, core PCE (personal consumer expenditure), to reach 3.2% by December 2025, well above the Fed’s 2% target – largely because of tariff-driven price increases.

The impact is already clear. In June 2025, the government collected $27 billion in customs duties, four times more than the monthly average in 2024. This shows that tariffs are being widely paid, not avoided, and imports haven’t dropped much.

Through June, US consumers had absorbed 22% of tariff costs, but that share was expected to rise to 67% by October, according to an August estimation from Goldman Sachs economists. That assessment led to a demand from Trump that the investment giant fire its chief economist.

Goldman Sachs economists said they expect that about 70% of the direct costs of the tariffs will eventually fall on the consumer, and that the total could rise to 100% if the spillover effects of domestic producers raising their prices are included.

This shift is already showing up in company earnings reports (firms are reporting better profit margins) and in official data: the Producer Price Index (PPI) jumped 0.9% in July, the largest monthly rise since mid-2022.

Foreign exporters, meanwhile, have barely absorbed any of the costs. Import prices haven’t dropped, meaning they’re not giving big discounts to offset the tariffs. Goldman Sachs notes that exporters might cover a bit more if US demand for imports falls, but most of the pain will land on American households.

What Will The Fed Do?

Although financial markets currently estimate an 86% probability that the Federal Reserve will cut interest rates by 25 basis points at its meeting on 16–17 September 2025, Forbes argues that the remaining 14% chance of no change should not be dismissed lightly.

The Fed’s preferred inflation measure, core PCE, remains above the 2% target. Despite a sharp drop from the 2022 peak, inflation has not yet reached the target. Tariffs complicate the inflation picture. While they may cause a one-time price level shift, they don’t necessarily lead to persistent inflation. Well – that is what The Fed is saying, but is it really that simple?

The U.S. unemployment rate has remained steady around 4.2% for the past year. While this is slightly higher than the 3.4% lows seen in 2022-2023, those earlier figures were considered unsustainably low. The current rate is still historically low and reflects a healthy labour market with:

·        Stable job creation

·        Low layoffs

·        Moderate wage growth 

The Federal Reserve has a dual mandate:

1.      Price stability (i.e. controlling inflation)

2.      Maximum sustainable employment 

When employment is stable and strong:

·        The Fed feels less pressure to stimulate the economy through rate cuts.

·        It can prioritise fighting inflation without risking a spike in unemployment.

·        A strong labour market suggests that consumer spending will remain resilient, which can sustain inflationary pressures. 

In this context, if inflation remains above the Fed’s 2% target – as it currently does – then a rate cut could be seen as premature, potentially fuelling further inflation.

Uncertainty Fuelling Gold’s Record Run

Gold prices kept reaching new highs this week, as ongoing uncertainty in the markets and expectations that the US Federal Reserve will lower interest rates this month made more people buy gold as a form of a safe investment.

Over the last five years, geopolitical shocks (pandemic aftermath, Russia-Ukraine conflict, US-China trade tensions, climate risks) have kept risk aversion elevated, fuelling investor flight into the refuge of gold.

More recently, Donald Trump has stepped up his attempts to influence the US Federal Reserve, adding to his long-running clash over how it sets interest rates. He has not only criticised Fed Chair Jerome Powell for not cutting rates more aggressively but also tried to sack Fed Governor Lisa Cook, accusing her of mortgage fraud. Cook has responded by taking the matter to court, calling the move “unprecedented and illegal.”

This fight has raised big questions about the Fed’s independence, which is vital for its credibility and decision-making. With the political pressure growing, investors have turned nervous – especially in the gold market, where demand for the safe-haven asset has surged.

Spot gold price at the time of writing this blog: $3,537.76/oz

China: Improving Trade Relations and Success Through Stimulus

Trade relations between the United States and China are starting to improve. President Trump has paused additional tariffs on Russian oil exports to China, which eases some of the economic pressure on Russia. He also signed an executive order to extend the current tariff truce with China by 90 days, pushing the deadline to 10 November 2025. This extension could lead to a possible summit between Trump and President Xi later this year, showing that both sides are open to constructive talks.

Meanwhile, China is actively boosting its economy through several measures:

1. Making it easier for banks to lend money

·        The government is cutting interest rates and lowering the amount of money banks must keep in reserve (called the reserve requirement ratio).

·        It’s also pumping extra money into the financial system—this is similar to what’s called “quantitative easing” in the West.

·        These steps make it cheaper and easier for businesses and people to borrow money, which encourages spending and investment.

·        A key sign this is working: the amount of money flowing through the economy (called “total social financing”) has stopped shrinking, and the stock market is going up. 

2. Spending more money as a government

·        China is also spending a lot more on public projects and services—more than it has in nearly three years.

·        This has pushed the government’s budget deficit to a new high, meaning they’re spending more than they’re earning.

·        The goal is to support the economy while it faces challenges like weaker consumer demand and trade tensions (e.g. tariffs).

These efforts seem to be working. More Chinese savers are moving their money out of bank accounts and into the stock market. This shift is driven by falling interest rates on savings and strong performance in equities, which have reached their highest levels in four years. In short, China is using these tools to stimulate economic activity, boost confidence, and keep growth on track during a tricky period.

Sygnia’s Itrix MSCI China Feeder ETF is up 43.4% over the past 12 months.

A Quick Local Update:

South African stocks continued to rally on the back of the rallies in Chinese technology companies and commodities, particularly precious metals.

The Rand Merchant Bank/Bureau for Economic Research (RMB/BER) Business Confidence Index declined to 39 points in Q3 2025 – three points below the long-term average of 42 – indicative of widespread dissatisfaction among businesses.

The survey took place from 6 to 25 August, coinciding with the implementation of a 30% U.S. tariff on South African exports – the highest such rate in Sub-Saharan Africa. Sectors like automotive were hit hard by cancellations, production pauses, and front-loading, which weighed heavily on sentiment.

RMB’s Chief Economist, Isaah Mhlanga, noted that South Africa’s experience isn’t unique – countries worldwide are adjusting to a “difficult emerging global world order”, driven by political and economic shifts over the past year.

Final Word

As we move deeper into September, markets are balancing on a tightrope between optimism and caution. Central banks face the difficult task of managing inflation without derailing growth, while trade frictions and political tensions continue to unsettle investors. Gold’s record highs, China’s bold stimulus push, and South Africa’s tariff-induced struggles all underscore how interconnected the global economy has become. For now, resilience in equities suggests that investors still believe policy support will hold the line – but history reminds us that September has a way of testing that confidence.

 

Disclaimer:
The content provided on this blog is for informational purposes only and does not constitute financial advice, investment recommendations, or an offer to buy or sell any financial instruments. Readers are encouraged to consult with a qualified financial advisor before making any investment decisions. The author assumes no responsibility or liability for any errors or omissions in the content or for any actions taken based on the information provided.