Global equity markets had a solid month. In the US, the S&P 500 and NASDAQ increased +2.2% and +3.7%, respectively, whilst in the UK, the FTSE rose +4.2%. Domestically, the AllOrdinaries Accumulation index was broadly in-line with its US peers, rising +2.6%. This was led by the Healthcare (+8.7%) and Resources sectors (+4.5%), which benefitted from a rotation out of Banks (-1.3%), following a period of strong outperformance.

Investor sentiment during the month was buoyed by the announcement of several US related trade deals, including with the European Union, Japan and South Korea, amongst others. As it stands, the "effective tariff rate" from the US is set to rise from an average of ~2% in 2024 to ~16%. Whilst the impact of this remains unclear, investors will undoubtedly be keeping an eye on economic data over the coming months.

Closer to home, June quarter 2025 domestic inflation figures came in slightly weaker than expected, with the trimmed mean CPI (the RBA's preferred measure of underlying inflation) declining to 2.7% (YoY) from 2.9% in 1Q-2025. As a result, financial markets now expect to the RBA to cut the cash rate by 25bps during the upcoming 12th August meeting.

In bond markets, the US 10-year bond yield rose +15 basis points (bp) to 4.37%, whilst its Australian counterpart rose +10bp to close at 4.26%. The Australian dollar was weaker in June, closing at US$0.643, down 1.6 cents.

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Firm US GDP supports Fed's decision to keep rates on hold for now

The Federal Reserve (Fed) kept rates on hold on 30 July, maintaining the policy rate in a range between 4.25% and 4.5%, following stronger-than-expected US Q2 GDP data. Although the Fed's rate decision was widely anticipated, the first double dissent in 30 years--from Fed governors Christopher Waller and Michelle Bowman--highlighted a divergence in outlooks among Federal Open Market Committee voters. Waller and Bowman pointed to early signals of softness in the labour market, although data suggest that economic activity continues to be supported by offsetting factors, even in the post-2 April world. In Q2, US consumption made a positive contribution to growth, albeit less strongly than in late 2024 (Chart 1). However, a significant expansion in net exports--compensating for front-loaded imports in Q1--more than offset a decline in private domestic investment and subdued government consumption. Still, US growth remains influenced by temporary factors, and households may not yet have felt the full brunt of US tariffs.

Fed Chair Jerome Powell acknowledged emerging risks in the labour market but emphasised that employment is closer to one of the Fed's goals of full employment than inflation is to its mandate of price stability. Supporting Powell's point, the US core PCE index posted a smaller-than-expected decline, falling from 3.5% in Q1 to 2.5% in Q2, meaning that it is still half a percentage point above the Fed's target.

Chart 1: US GDP contributions (seasonally adjusted, annualised rate)

Source: Nikko Asset Management, Hutchins Center on Fiscal & Monetary Policy, BEA

Tariff deadline rush underscores reasons to wait and see

A deluge of new information on US tariffs continues to pour in, with the market and the US economy still trying to digest its implications. Tariff rates range widely, from 15% on exports from heavyweight South Korea to a higher-than-expected 25% on Indian goods. The only constant appears to be that tariffs remain subject to upward pressure, although the situation is perhaps not as severe as some worst-case scenarios had projected.

The full economic impact of the newly agreed tariffs remains unclear, but it is likely that the most significant effects of the US tariff war still lie ahead. As we pointed out in Global Investment Committee's outlook: narrowing growth differentials , a New York Fed corporate survey shows that most companies plan to pass on tariff costs, at least partially, and that they typically do so with a lag of one to three months. Since we are not even a month past the initial 4 July "reciprocal" tariff deadline announced in April, further pass-through may still be pending in inflation data.

Of course, the timing of such price rises may not be ideal as the job market has shown early signs of softening. However, repeated micro-adjustments to global supply chains and prices that result in consistent shocks may work against arguments for rate cuts based on labour market weakness. This could be particularly true if consumers internalise such repeated shocks and adjust their long-term inflation expectations upward. It is worth noting that once internalised and passed through into long-term expectations, inflation tends to be sticky. As such, it is not certain if the prevailing effect will ultimately be a decline in demand driven by rising unemployment.

BOJ stands pat but slightly more hawkish on growth and inflation outlook

The Bank of Japan (BOJ), like the Fed, opted on 31 July to remain in wait-and-see mode, keeping its policy rate on hold at 0.5%. However, in its updated outlook the BOJ modestly revised its near-term growth view from 0.5% to 0.6%. In addition, it significantly revised its near-term core CPI outlook from 2.2% to 2.7%. The central bank also modestly upgraded its longer-term core CPI projection; its two-year forward CPI forecast was revised back to 2% from 1.9%.

These revisions, all else equal, provide a greater argument for a more hawkish BOJ compared to May. Meanwhile, the assumption that core CPI will slow from 2.7% in the current fiscal year to 1.8% in the next is highly dependent on the pricing-out of fresh food prices and absence of other inflationary factors going into fiscal 2026. Should prices remain more robust over late 2025 and household purchasing power stay intact, the BOJ may be prompted to bring forward its rate hike timeline. Our central scenario remains that the BOJ is likely to hike rates before the end of 2025.

China's Politburo also in wait-and-see mode, keeps policy powder dry

Amid the global wave of data, China's Politburo expressed confidence in the resilience of the Chinese economy but has so far refrained from offering new policy measures. As trade negotiations with the US have now been extended, China could be trying to maintain some dry powder to react to the eventual outcome of the talks--particularly if it poses any additional challenges to external demand.

A key development is the 4th Plenum in October, which will focus on the 15th Five-year plan (2026 to 2030). This event may provide an opportunity for new policy announcements in response to what is revealed after extended China-US trade talks. By October, the need for consumption-focused stimulus may become apparent, particularly if China's current "anti-involution" campaign--aimed at curbing excessive capacity--proves ineffective in offsetting price declines stemming from households' soft demand and precautionary savings.

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Portfolio Manager Hamish Chamberlayne explores how, in a world marked by geopolitical upheaval, artificial intelligence (AI) is transforming traditional economic forces, presenting both opportunities and challenges.

In today's world, characterised by heightened confusion and unpredictability, geopolitical dynamics are increasingly overshadowing traditional economic forces. Nations worldwide grapple with declining workforce participation, ageing demographics, unproductive government expenditure, and substantial fiscal deficits. Yet, within this turbulent landscape the secular drivers of sustainable investing remain intact.

Secular investment trends around electrification, renewable energy, digitalisation, AI, and reshoring are progressing uninterrupted

Last year, investment in the green transition reached unprecedented levels, surpassing US$2 trillion for the first time.¹ The majority of this funding was directed towards established technologies such as renewable energy, energy storage solutions, smart grids and electric vehicles (EVs).

Despite the recent stagnation of US climate initiatives, Europe and China are intensifying their clean energy and broader sustainability efforts. Global EV sales this year are forecast to grow by 25% (22 million) compared to 2024, with China accounting for almost two thirds, followed by Europe (17%).² Even in the US, EV sales are set to grow by 7% this year despite the Trump administration's withdrawal of federal support.

Meanwhile, President Trump's 'Big Beautiful Bill' will provide significant government funding, grants and tax incentives for companies investing in the US. Reshoring manufacturing and developing supply chain resilience in critical minerals are set to underpin a prolonged investment cycle, which is further fuelled by the gigantic levels of investment going towards AI infrastructure.

The large tech companies dubbed the 'Magnificent 7' are spending in excess of half a trillion dollars³ annually in the race for AI supremacy. All of this investment is resource and labour intensive and we see sustained growth in demand for power and electrification infrastructure to support it.

The role of AI in decarbonisation

These high levels of investment provoke questions about environmental sustainability. The build out of all this AI and electrification infrastructure is also carbon intensive and we are paying close attention to the fact that carbon emissions are not going in the right direction. Although we are concerned by this uptick in emissions, we are optimistic that AI will ultimately play a beneficial role in decarbonisation efforts through advancements in innovation and productivity; and we remain confident that the growing demand for energy will be met with increased investments in clean energy solutions.

At Janus Henderson we have a proprietary climate transition analysis tool, and we are maintaining close engagement dialogue with our investee companies regarding their decarbonisation pathways. Thus far, we are pleased to report that we have seen no evidence from the companies we invest in that their corporate sustainability initiatives are slowing. In fact, we see that companies worldwide keep setting net-zero targets and pouring capital into efficiency, waste reduction and supply-chain resiliency, providing durable foundations for our sustainable investment themes.

Running hot - a fiery economy ahead?

Coincident with these high levels of investment, government deficits are expected to remain large, and this is supportive of corporate profitability and asset prices. When combined with easing monetary policy, and pro-growth changes to banking regulation, we believe this is a positive backdrop for global equity markets.
Therefore, despite geopolitical uncertainties, we believe the stage is set for the global economy to run hot, and investors should be concentrating on these clear and significant investment trends which are marching ahead regardless. These trends are inherently long-term and driven by technological advancements and societal needs rather than political shifts or individual country policies.

Sustainable fundamentals

Our team continues to concentrate on companies positioned to benefit from these enduring sustainability trends. For example, we favour sectors such as industrials and information technology - areas replete with innovators solving efficiency and climate challenges. Companies within electrical equipment, professional services, software, renewables, automotive technology and infrastructure are exposed to the secular themes of electrification, digital services, AI and decarbonisation. These companies are capitalising on booming demand and are exactly the kind of "picks-and-shovels" providers enabling this digital, electric and green future that the world is transitioning towards.

We believe it is important to seek out high-quality businesses with strong free cash flow and durable growth. This discipline tempers volatility during market shocks. It echoes lessons from 2020, when companies with robust financials and sustainable moats (competitive advantage that helps protect a company's profitability) proved far more resilient.

By "staying on the right side of disruption" - i.e. investing in firms driving change rather than those at risk from it - we believe investors can better weather turbulence and capture superior growth over time. This means being incessantly forward-looking in approach. Our thesis is grounded in the principles of durability allied with innovation - as Peter Drucker, the Austrian American author and consultant who helped develop modern management theory, reminds us:

"The greatest danger in times of turbulence, is not the turbulence, it's acting with yesterday's logic."

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Apparently, Confucius did not say "One Picture is Worth Ten Thousand Words" after all. It was an advertisement in a 1920s trade journal for the use of images in ads on the sides of streetcars...

There's a healthy spread between the volatility investors are pricing in for small caps relative to large caps but high yield ("junk") spreads are near historical lows. Sticking with the small-big spread, the price/book chart is smiling back at you. Valuations for high growth companies have shot away from the pack, giving the US market an edge over Australian multiples - but with both above fair value according to Morningstar. ASX large caps have seen more upgrades than downgrades in the week leading into reporting season. We divert to look at the split of assets between generations and the affordability of housing; stablecoins becoming relevant players in the US treasuries market; China's declining population of workers; and finally volatility for "Dr Copper".

Spread between VIX (S&P 500 implied volatility) and Russell 2000 VIX (small cap implied volatility)

 

Source: Equitable Investors

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ICE BofA US High Yield Index Option-Adjusted Spread

Source: FRED (Federal Reserve of St Louis)

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Premium in US large caps' price/boom multiples is the widest in 25 years

Source: Bloomberg

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Recent multiple expansion in "high growth" (>25% YoY growth) companies

Source: Altimeter via Clinton Capital

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Forward P/E - US v Australia

Source: Ord Minnett

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Australian market trading above Morningstar's bottom-up fair value estimate

Source: Morningstar

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US market has also return to a premium v bottom-up fair value

Source: Morningstar

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More consensus upgrades than downgrades for ASX large caps over week leading into August reporting season

Source: Equitable Investors

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Share of US household assets owned by those aged 55 and above

Source: Apollo Global Management

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Distribution of Australian household net worth by age group

Source: Saul Eslake

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House price to income ratios

Source: Endeavour Equities

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Stablecoins the 18th largest external holder of US Treasuries

 

Source: The Kobeissi Letter

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China's working-age population expected to decline dramatically

Source: Apollo via Forager

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Dr Copper has turned volatile - daily price changes

Source: BoAML

August 2025 Edition

 

Australian housing values rose 0.6% in June, marking five straight months of growth. The June quarter saw a 1.4% national increase, with gains across most capital cities - driven by falling interest rates and low advertised stock.

Key highlights:

• Brisbane (+2.0%), Perth (+2.1%) and Darwin (+4.9%) led quarterly capital city growth
• National dwelling values are up 3.4% year-on-year
• Buyer demand remains steady, while advertised supply is 5.8% lower than last year
• Consumer sentiment is improving alongside expectations of further rate cuts in 2025

Despite affordability constraints and economic uncertainty, tight supply and easing rates continue to support modest value growth across Australian markets.

Property Values as at 30th of June 2025

Median Dwelling Values
as at 30th of June 2025

Source: Cotality HVI, 1 July 2025

June Edition

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5 Things Some Investors Get Wrong About Trend-Following - And Why It's Worth Rethinking Portfolio Resilience

Trend-following has been a cornerstone strategy for many sophisticated allocators over decades. Yet it remains surprisingly underrepresented in the portfolios of high-net-worth individuals and family offices. Why? Because common misconceptions often overshadow its proven benefits.

Below are five of the most frequent misunderstandings we hear from advisers and investors, and why it's worth taking a fresh look.

1. "Trend-following doesn't work anymore."

It's a refrain that pops up regularly: "Trend-following is dead." History tells a different story. During major market dislocations - such as 2008, 2014, 2020, and 2022 -- trend-following strategies have often been among the best performers.

The key is understanding that trend-following is cyclical, not broken. It thrives in volatile or directional markets, i.e. precisely when traditional portfolios, heavily reliant on equities and bonds, struggle.

2. "It's just chasing momentum."

This is a common oversimplification. Trend-following isn't about hype, news, or hot sectors. It's about price confirmation. Systematic, rules-based models scan global markets daily, adjusting exposures based solely on observable price trends.

This removes emotion and narrative bias from the equation, resulting in a disciplined process rather than a speculative bet.

3. "It's too volatile for wealth preservation."

Uncorrelated doesn't mean reckless. In fact, professional trend-following programs explicitly target and manage volatility.

More importantly, trend-following tends to be "long volatility", meaning it often gains when traditional assets fall sharply. This provides essential ballast in downturns, preserving capital when it matters most.

4. "It's only for commodity traders."

That was the perception decades ago, but today's trend-following strategies are far more diversified. They trade across equities, fixed income, currencies, and commodities, spanning global liquid markets.

These aren't directional commodity bets; they are dynamic, macro-driven strategies that adapt to evolving market regimes.

5. "It doesn't belong in a strategic allocation."

Some treat trend-following as purely tactical or opportunistic. The data challenges this view.

Over full market cycles, trend-following has delivered consistent positive returns, low correlation to traditional assets, and strong risk-adjusted performance -- especially in equity crises.

This makes it a powerful core diversifier for multi-asset portfolios focused on resilience.

Conclusion

At ECCM, we view trend-following not as speculation, but as a portfolio stabiliser.

It requires no forecasting or macro calls, just a robust, repeatable process to adapt as markets shift.

For investors seeking durable, long-term capital growth with reduced drawdowns, trend-following deserves serious consideration.