Effective date: 31/08/2026August 2026 was dominated by concerns over long-term interest rates. The deadlock in negotiations between Iran and the United States, against a backdrop of sporadic attacks, maintained oil volatility, with Brent ending the month at $89. The persistence of energy prices at high levels rekindled inflation fears and weighed on bond markets. In response to the rise in long-term rates, U.S. Treasury Secretary Scott Bessent announced at least a doubling of long-dated Treasury buybacks for the quarter.
The inflation figures published in August, relating to the month of July, sent a mixed signal. In the United States, headline inflation (CPI) slowed to 3.4% year-on-year, compared to 3.5% in June, while core inflation fell to 2.5%, its lowest level of the year. In the eurozone, by contrast, inflation accelerated to 2.9%, up from 2.8% in June, driven by a renewed increase in the energy component (+10.3% year-on-year), linked to oil and gas prices. Core inflation there came out at 2.5%.
Business activity surveys remained generally well oriented despite energy pressures. In the eurozone, the composite PMI rose for the third consecutive month to 52.1 in August, a high since November, supported by German industry. In the United States, the ISM manufacturing index jumped to 55.6 in July, its best level since May 2022, while the ISM services index held steady at 54.1. Conversely, the July employment report disappointed, with 23,000 net non-farm job losses and significant downward revisions, even though the unemployment rate fell to 4.1%, a thirteen-month low, due to a further decline in the participation rate. In Japan, unemployment fell to 2.4% in July, while Tokyo inflation reached a five-month high in August. China remains lagging, with PMIs falling to a four-month low in July, still reflecting the contrast between AI-related segments and the rest of the economy.
No major central bank met in August. The main event was Jackson Hole, where Kevin Warsh was rather reassuring on employment but concerned about the inflation trajectory. For the first time since the start of his term, he indicated that the Fed's attention should now focus primarily on price stability. In the eurozone, ECB minutes suggest that a majority of the Governing Council would be ready to raise rates in September to contain the effects of rising energy prices. In Japan, several BoJ officials called for an acceleration of tightening, with markets now anticipating a strong probability of a 1.25% rate as early as September.
Equity markets held up well to oil volatility, supported by renewed interest in the artificial intelligence theme. The S&P 500 set several new records before ending the month up 2.6%. The Eurostoxx 600 also reached a historic high, before finishing with a more modest gain (+0.3%). The Nikkei gained 3%, still driven by semiconductors, while the MSCI Emerging rose 3.2%, also supported by technology.
Bond yields generally rose, especially at the end of the month after Kevin Warsh's speech. The U.S. 10-year ended at 4.74%, a high since the start of 2025. The German 10-year rose sharply to 3.30%, its highest level since 2011, amid expectations of an ECB rate hike, while sovereign spreads in the eurozone widened slightly. In Japan, the 10-year also rose to 2.92% in anticipation of BoJ tightening. Finally, gold rebounded strongly (+9.6% for the month), its best monthly performance since January, supported by interventionist measures from the U.S. Treasury.
The month was marked by a rapid rebound, concentrated in the first half of August after the late July trough. Software was the main driver of the portfolio, accounting for most of the relative performance, with strong gains in ServiceNow, Zscaler, and Snowflake, on the back of reassuring earnings releases and less pronounced fears of potential value destruction in the sector by generative AI. Cybersecurity also rebounded strongly, driven by CrowdStrike and Rubrik. Networking and infrastructure contributed positively via Arista Networks and Lumentum. Underperformance relative to the index is mainly explained by a different allocation from the benchmark, which is more exposed to certain large-cap AI infrastructure names, notably Nvidia, as well as the relative weakness of several portfolio semiconductors, particularly KLA. Conversely, stock selection within Communication Services helped limit the extent and was overall favorable, with Netflix as a strong contributor. The rebound was also amplified by the unwinding of hedge fund positions, notably after the Situational Awareness episode.
Management continued to take profits on the stocks that had rebounded the most, particularly in the software segment, in order to reduce momentum and concentration. At the same time, the fund strengthened or initiated positions deemed more asymmetric, with Samsung Electronics and by tactically increasing some AI adopters.
The fund remains constructive on the AI-related investment cycle, but with a more selective approach after the rebound. Management favors segments where fundamental visibility remains strongest, such as critical software, cybersecurity, network infrastructure, and certain memory pockets, while remaining disciplined on valuations and entry points.