August Market Update 2026

Posted by Bedrock on 1st September 2026

August Market Update 01.09.2026

 
“Summer’s lease hath all too short a date.”

– Shakespeare, Sonnet 18

Summary

• Markets ended the month pricing a September Fed hike at close to two-thirds likelihood, up from around 32% before Jackson Hole, after Chair Kevin Warsh warned that underlying inflation trends had not improved.
• The US Treasury increased its pace of intervention in the Treasury market with little to show for it. US yields finished August close to where they started, though the round trip was enough to give gold its best month since January.
• Japanese yields rose to their highest levels since the 90s with a September Bank of Japan hike now around 80% priced while the yen slid back toward 160 per dollar despite July’s joint intervention. Japanese equities continue powering ahead, with the Nikkei closing out August up +32.9% YTD
• A standout earnings season led by big tech reversed July’s losses with the Nasdaq up +4.0%, the S&P 500 +2.7% and emerging markets +3.4%.
• Geopolitics returned without resolving anything. Hormuz remains shut in all but name, the CIA director made an unannounced trip to Moscow, and Black Sea escalation lifted wheat +12% in a week.

Euro summer

Markets spent August embracing the Euro summer ethos: do very little, react to less, and leave the notifications off. Meanwhile Washington, characteristically, could not sit still. US Treasury Secretary Scott Bessent’s intervention in the Treasury market failed to make an impression, Fed Chairman Kevin Warsh continued to fight for control of a narrative he insists is not his to provide, and President Trump’s jawboning of Canada and Iran produced little beyond retaliation. Europe and the UK, true to form, stayed quiet through the recess and were rewarded with the absence of any new crisis. Call it the experience of knowing when to do nothing.

Big talk, small stick

Long-dated US government bonds had struggled to find buyers since late June, with a deficit set to eclipse last year’s, inflation still above target and heavy corporate issuance competing for the same money. Thirty-year yields touched 5.33% mid-month, their highest in nineteen years. The Treasury’s response, announced on August 19, was to step up its own purchases of longer-dated bonds. Yields fell for two days and were back where they started by the end of the week. The sums involved were small relative to what the government needs to borrow, and the market read the announcement as an attempt to talk long yields lower rather than a policy with the means to do so. It also puts the Treasury at odds with a Fed chair who has been asking for less official intervention in markets, not more.

Warsh takes the wheel

It was the Fed’s Jackson Hole summit that provided the month’s real repricing event. Despite his restated refusal to give outright forward guidance, Chair Kevin Warsh drilled home three points: he named PCE as the gauge he will act on, called financial conditions “not restrictive”, and judged that underlying inflation trends had not improved, warning that the Fed “must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed. Otherwise, we have work to do.”

A weak jobs print and a cool CPI report had held expectations of a September hike down to around 32%. Jackson Hole sent them soaring, to close the month near two-thirds. For all that, the bond market ended August almost exactly where it began: two-year yields rose a basis point and a half to 4.36%, the ten-year not quite three to 4.78% and the thirty-year the same to 5.27%. Three months of grinding higher, and then a month in which nothing moved at all. That is a round trip over which much ink will be spilled, but it does not change the underlying picture of heavy government borrowing and inflation that has not yet come back to target. Politics may delay tightening until after the midterms; the direction of travel looks settled.

The other long end

If Washington made the noise, Tokyo made the move. Ten-year JGB yields rose almost fifteen basis points to 2.96% and the thirty-year the same to 4.14%, the highest level since the late 90s. A September Bank of Japan hike to 1.25% is now roughly 80% priced against 23% before the July meeting, and the Finance Ministry is weighing an assumed interest rate of 3.8% for the 2027 fiscal year against 3% today.

The lesson is what this did to July’s joint intervention in the yen. Having been bought back to 157 from around 164, the yen drifted to 160 by month-end, some 1.8% weaker. Higher JGB yields are no longer read as a narrowing rate gap that will strengthen the currency, but as a fiscal warning. This will cause concern on the other side of the Pacific as Japanese institutional investors begin pulling money home, with nearly $30bn of US debt sold in the first quarter alone. The most dependable buyer of long duration US debt is becoming a seller, which further limits the effectiveness of the intervention into the Treasury market.

Japanese equities took this in their stride, the Nikkei up +3.1% on the month and +32.9% YTD. They remain a star performer even in international currency terms, buoyed by stronger domestic demand, fiscal support, and increased export competitiveness from weakening yen.

Back on track

Following the last month’s sell off, big tech earnings season delivered, led by Nvidia, reigniting the AI trade. The Nasdaq rose +4.0% and the S&P 500 +2.7%, with MSCI World up +2.6%. Emerging markets were up +3.4% with Taiwan adding +4.5% and Korea +1.7% to stand +8.2% higher for the year, while China, India and Latin America each slipped slightly. July’s broadening paused and leadership narrowed back toward the mega-caps: the Russell 2000 managed +1.0% and the equal-weight S&P +2.1%, both behind the main index. The question of how much the market’s return depends on a handful of very large companies therefore stands exactly where it did in June.

Gold was the month’s genuine reversal, ending August at $4,418, up +8.9% and its best month since January. It was worth considerably more before Jackson Hole, falling 5.2% in the final five sessions as Warsh reopened the case for a hike. The move is easy to explain and harder to dismiss: a Treasury attempting to manage its own borrowing costs, a Fed that may have to raise rates into a widening deficit, and Japanese investors, long a dependable buyer of US government debt, bringing their money home instead. These are slow-moving structural arguments rather than a summer trade, which is why we would not treat the August move as a spike to be faded.

Elsewhere, German ten-year yields rose almost twelve basis points to 3.34% as euro-area inflation held near 3% on double-digit energy costs, and a September ECB hike, the second of this cycle, is now largely priced in. European equities barely reacted with STOXX 50 up 0.5%. Britain was unusually quiet, gilts near unchanged with the ten-year at 5.22%, the FTSE 100 up 0.2% as the summer recess meant a slowdown in the news cycle. Credit, meanwhile, having ignored July’s drama, quietly rewarded it, global high yield tightening fifteen basis points to 272 and investment grade one to 71.

Old fronts, new premiums

Politics is working its way back into the market’s view with the November midterms around the corner. The President has decided to reignite his trade war with Canada, and this time Ottawa is retaliating rather than absorbing. In the Strait of Hormuz, the US and Iran are exchanging fire again just as Iran and Oman are agreeing to a deal to operationalise the new framework for passing the waterway. And as Ukraine and Russia increasingly strike deeper into each other’s territory and beyond, a surprise trip by the head of the CIA to Moscow raises more questions than it answers.

Financial markets have stopped trading any of it, which is telling. The consensus is that the midterms reduce Washington’s capacity for unilateral action into 2027, and that anything unresolved before then can wait. But the premium still shows in commodities, with WTI at $87 a barrel and the S&P Agriculture Commodities index gaining 14.1%.

Back to school

August lived up to its reputation of a month when little happens. Equities took back what they gave away in July, Treasuries did a round trip, global yields continued their grind higher, and no geopolitical friction came any closer to resolution. The one genuine reversal was gold, and even that gave back part of the move once Warsh reopened the case for a hike.

September will not be so obliging. The Fed, the ECB and the Bank of Japan meet within a fortnight of each other, all three with tightening priced to some degree, and the UK budget and the US midterms follow. Almost nothing was settled over the summer; most of it now comes at once. The AI trade continues powering on, and the market’s willingness to look through everything else rests on it continuing to do so. As Euro summer gives way to autumn blues, that is not a setup that rewards complacency.

If you have any questions about the themes discussed in this article, please do not hesitate to get in contact with us: info@bedrockgroup.com

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