05/09/2025
Market review
Trade Tariffs of 39%
While August was relatively calm on the stock markets, political and economic developments attracted considerable attention.
For Switzerland, the month proved challenging after the United States imposed import tariffs of 39% on its products. The Swiss economy and political leaders were taken by surprise, having assumed after talks with Washington that they were in a stronger position. The outcome revealed clear weaknesses in the negotiating stance of both government and industry representatives. The Swiss stock market reacted with unexpected composure, as large multinational companies manufacture most of their goods abroad and are therefore hardly affected. Moreover, supply chains and contracts cannot be adjusted overnight.
Specific products without short-term alternatives continue to be delivered despite the new tariffs. The real losers are small and medium-sized enterprises, which produce almost exclusively in Switzerland and have already reduced or suspended exports to the US. Nevertheless, the Swiss economy grew by 0.1% in the second quarter, narrowly avoiding contraction. Growth was driven primarily by the services sector, while industry, particularly pharmaceuticals and textiles, recorded declines. The KOF Barometer as well as consumer and business sentiment have also weakened recently.
The US Economy Still Holds Up
The inflation rate remained at 0.2% year-on-year in July, while core inflation stood at 0.8%. Imported goods continue to exert a deflationary effect, while domestic price pressure remains low. Given the uncertain environment, the SNB is expected to keep its policy rate at 0% for now, although some market participants do not rule out a cut in September.
In the US, the economy regained momentum after a weak start to the year, posting +3.3% growth in the second quarter. Notable was the 3.3% rise in producer prices in July, well above expectations. Consumer prices remained broadly in line with forecasts, but inflation concerns intensified. At the same time, labour market dynamics weakened: revisions showed that few jobs were created in previous months, while the participation rate declined further.
The ISM services index unexpectedly fell to 50.1 points in July, heightening concerns over a slowdown. The Fed thus faces a dilemma: inflation risks are rising, but the labour market is losing strength. Following Jerome Powell’s speech at the Jackson Hole Symposium, markets now almost fully price in a rate cut in September. In Europe, growth continues, but only slightly.
Europe Hardly Growing
Eurozone GDP grew by just 0.1% in the second quarter, after +0.6% in the first. Germany even contracted by 0.3%, while Italy stagnated. France managed a slight increase, and Spain remained surprisingly robust. German industrial production fell to its lowest level since May 2020, weighed down by weak foreign demand and the tariff shock. The Ifo business climate index improved slightly, pointing to a cautious rise in expectations.
Eurozone inflation remained at 2% in July, with the core rate at 2.3%. A rate cut by the ECB in September therefore seems unlikely, especially as unemployment is at a record low.
In China, the economy clearly lost momentum at the start of the third quarter. Industrial production grew by only 5.7% in July, the weakest since late 2020. Retail sales rose just 3.7%, well below expectations. Exports did increase sharply, but partly due to front-loading effects. Growth remains heavily supported by state-subsidised sectors, while private investment is declining. This development fuels doubts about whether the official 5% growth target can be achieved.
Equity markets
August was a positive month for equities, with modest gains. Unusually, technology stocks were not the main drivers, as doubts about the growth of AI companies are increasing, with most still far from profitable. In Europe, Germany and France stood out negatively. In Germany, concerns are growing about planned new borrowing and the impact of US tariffs. In France, the government faces a major test over possible budget cuts. Given the high share of public spending, such cuts are urgently needed, but the coalition is divided, raising the prospect of new elections.
Interest rates
After the Jackson Hole Symposium, two US rate cuts are expected by year-end – at least that is how many interpret Powell’s remarks. In Switzerland, fears of negative rates are rising, as the 39% tariffs on exports to the US could prompt the SNB to support the economy. In France, yields on 10-year government bonds are climbing further amid political turmoil, with only Italy paying slightly more. In Japan, yields on 30-year bonds have surged to levels not seen in decades.
Currencies and commodities
After a technical rebound in July, the US dollar lost ground again in August. The prospect of rate cuts weakened the greenback against both CHF and EUR. In light of economic and political uncertainties, gold reached new record highs, and silver rallied strongly above USD 40 per ounce. Oil, on the other hand, fell on concerns over global growth. Bitcoin corrected by more than 6% after its strong July rally, as profit-taking weighed on prices.