LGT Private Banking House View

August 2025 - in a nutshell

The economic and geopolitical tensions of recent months have once again shown us how fragile and at the same time dynamic global markets can be. Tariffs, inflationary pressures, and central bank responses are just some of the factors keeping markets on edge. Yet, as uncertainties increase, it also becomes evident that the economy is more resilient than many had anticipated.

  • Date
  • Author Gérald Moser, Head Investment Solutions Europe, LGT Private Banking
  • Reading time 7 minutes

Modern architecture and buildings in the financial centre
© Shutterstock

The United States is at the centre of attention: the introduction of higher tariffs has not only fuelled inflation but also altered consumer behaviour. Private consumption - the backbone of the American economy - is slowing, and initial cracks in the labour market are becoming visible. Despite these challenges, the US economy remains robust enough to avoid a drastic downturn. We expect the Federal Reserve to cut its interest rate in the fourth quarter of 2025, once uncertainties surrounding inflation subside.

In Europe, a different picture emerges. While domestic demand remains stable, the export sector is suffering from trade conflicts. Countries like Ireland and Germany, whose economies are heavily dependent on US exports, are particularly affected. Nevertheless, declining inflation provides the European Central Bank with room for further rate cuts, which should support domestic activity.

Stock markets have recovered in recent weeks, and volatility has remained at low levels. However, regional differences are becoming increasingly apparent: while US stocks benefit from a weaker dollar and stable corporate earnings, higher tariffs and a stronger yen weigh on the outlook for Japanese equities.

The coming months promise no respite. Both economic and geopolitical tensions persist and could provide new impulses at any time - both positive and negative. But it is precisely in such times that it is crucial to remain calm and make clear, well-informed decisions.

Macroeconomic environment

Tariffs are beginning to impact the US economy, triggering sub-par growth and rising, but still contained inflation. Despite these currents, a more dramatic slowdown can be avoided, and the monetary easing cycle should resume in Q4 2025 when it becomes clear that the tariff thrust will not lift inflation expectations. In Europe, robust but modest domestic demand contrasts with declining exports to the US. Easing growth facilitates further ECB rate cuts while the SNB stays put.

Investment strategy

We confirm our currently balanced appetite for investment risk and the existing tactical positioning at the high level, where we keep global equity and fixed income at the strategic weight. We maintain our "Overweight" allocation in gold, above the strategic weight, at the expense of cash. Within equity, we neutralise US equity from previously "Underweight" and reduce the portfolio position of Japanese equities to "Underweight".

Equity strategy

Global equity markets have stabilised in recent weeks, with volatility remaining low. This environment allows for clearer differentiation between regions. We have moved US equities to "Neutral" in the portfolio context due to stabilising earnings, positive net earnings revisions, and support from a weaker USD, which benefits internationally exposed companies. Robust macroeconomic data and anticipated Fed rate cuts further underpin this move. However, elevated valuations may limit upside. Conversely, we have moved Japanese equities to "Underweight" as EPS estimates decline, political risks remain high, and Japanese yen appreciation creates headwinds. Limited BoJ support and the prospect of tighter monetary policy further weigh on the outlook. Sector-wise, financials and real estate remain "Attractive", while consumer sectors stay "Unattractive" due to weak demand and tariff risks. Our allocation balances cyclicality and defensiveness.

Fixed-income strategy

Despite growing fiscal uncertainty and political challenges, demand from foreign investors for US government bonds remains stable, confirming their status as a global "safe haven". The US fiscal budget continues to be financed largely through short-term Treasury bills, a proven strategy which nevertheless limits the independence of the Fed’s monetary policy and causes the US yield curve to steepen cyclically. Against this backdrop, fundamentals in the investment-grade segment remain solid, but tight spreads offer limited protection. We therefore favour short-dated, high-quality bonds in the USD segment, whereas medium-term maturities are more appealing in the euro area due to the steeper yield curve and more attractive compensation for spread duration.

Currency strategy

The euro‑dollar rate is expected to trade in a band, around 1.14 in six months and 1.17 in a year, driven near‑term by relatively high US rates and rising goods inflation, but facing medium‑term headwinds from policy uncertainty, widening deficits and regulatory shifts that weaken dollar support; against this, the euro’s stable institutions and valuations offer balance, though US carry still prevails. Should political pressure undermine the Fed’s independence, real yields may slide, pushing EUR/USD above forecasts (even towards 1.20+), whereas persistent goods inflation and Fed caution could keep the exchange rate pair within its anticipated range.

LGT Private Banking House View July 2025 - in a nutshell All articles LGT Private Banking House View September 2025 - in a nutshell
Logout
Forward-looking for generations
Our newsletters - automatically up to date

The LGT newsletters provide you with regular information on insights and news from the fields of business, finance and much more.

Newsletter registration
Follow us
Scaling impact LGT Venture Philanthropy