Monthly house view | September 2025
Context
The US economy is slowing and its weakening labour market has eclipsed inflation as the Federal Reserve’s chief concern. Job openings are declining and layoffs edging up. Against this backdrop, the Fed has opened the door to interest rate cuts in September and beyond. We expect three cuts this year, even if sticky prices are raising the risk of stagflation in the US. The impact of higher tariffs is taking longer than expected to show up in the economy but much is still to materialise, raising questions about the sustainability of US consumer spending. The US administration needs revenue from the higher tariffs to cope with a burgeoning budget deficit, which is running at the highest level outside of recessions and fueling concerns about US debt sustainability.
These concerns are undermining investor confidence in the US, which is being further drained by President Trump’s assaults on the Fed and the Bureau of Labor Statistics. This erosion of the old economic framework, under which the US delivered economic stability, security guarantees and superior returns in exchange for foreign capital, is negative for the US dollar (USD). While USD weakness usually implies euro strength, the euro area faces short-term challenges from political turmoil in France, which is amplifying concerns about the sustainability of the country’s public finances. However, looking further ahead, the catalysts remain in place for a European revival. We expect this to be supported by German fiscal stimulus kicking in from the fourth quarter of this year, increased spending and innovation in the defence sector, and supportive monetary policy.
Real assets
The confluence of macroeconomic and policy forces are undermining confidence in the USD. This increases the attractiveness of real assets – those with intrinsic value that is derived from their physical properties e.g. precious metals, real estate, private equity or infrastructure. In this new environment, we are positive on gold and silver. Demand for gold is being underpinned by investors’ search for tangible assets and by central banks replenishing their reserves of the previous metal, with a long way still to go to match historical levels. Equities, as de facto real assets, continue to be the preferred destination for retail investors, who have few alternatives. Robust earnings growth and resilient profit margins support a forward price-to-earnings ratio at the upper end of historical ranges, and underscore equities’ real asset properties.