Trade figures for August between the United States and China suggested this week that global supply chains may be shifting in response to the latest round of American tariffs. These duties, reintroduced after a short exemption period for certain products, appear to be prompting a strategic diversification that prioritises supply chain agility above concentrated geographic exposure. The data showed that Vietnam’s exports to the US fell quite sharply during the month, while American imports from China also eased. At the same time, interest in India, Mexico and parts of Eastern Europe was also shown to be on the rise. Such a reorientation could provide momentum for logistics, automation and infrastructure companies in those regions, all the while squeezing margins for firms that continue to depend heavily on Southeast Asian suppliers.
François Bayrou resigned as prime minister on Tuesday following his defeat in Monday’s no-confidence vote, a move which forced President Macron to begin the search for a new government. The political turbulence stems from Bayrou’s failure to secure support for his 2026 budget proposals, which included deep spending cuts and controversial reforms. The timing adds pressure ahead of a scheduled update from Fitch Ratings on France’s ‘AA-’ credit status, potentially heightening scrutiny of the country’s fiscal outlook and adding another layer of political uncertainty in the region. However, despite the upheaval, markets responded with restraint: the euro edged higher and French equities posted modest gains, reflecting priced in expectations that the vote would fail.
In the United States, Tuesday brought the annual revision of non-farm payroll benchmark data, incorporating more detailed information from the quarterly census of employment. The updated figures painted a softer picture of the labour market: job growth in the year to March 2025 was revised down by 911,000 compared with earlier estimates, leaving average monthly gains at just 76,000 – well below previous reports. This revision carries added weight given recent market anxiety over the impact of tariffs on job creation. It reinforces the view that much of this year’s volatility has stemmed more from sentiment than from shifts in underlying fundamentals. Because the period covered predates the latest tariff measures, the data suggest the jobs market was already on weaker footing – an impression echoed by more recent payroll figures, which continue to fall short of the level needed to keep unemployment steady. And as for markets? They absorbed the news with only minor wobbles: the Nasdaq and S&P 500 dipped slightly, while Treasury yields reversed earlier losses and pushed higher.
China’s consumer prices fell 0.4% year on year in August, marking the fifth bout of deflation in 2025 after being unchanged in July. The decline was driven by a 4.3% fall in food costs, the steepest in nearly four years, as ample supply and muted demand pushed pork and other categories lower. In contrast, non-food inflation edged higher to 0.5%, underpinned by subsidies and firmer prices in clothing, healthcare and education. The mixed picture, of course, has markets longing for Beijing to ramp up stimulus measures, which have already been plenty this year (including cutting the reserve requirement ratio and consumer and infrastructure investment).
Still to come this week we have US PPI, CPI and Michigan Consumer Sentiment and the ECB’s interest rate decision.
Nicola Tune, Portfolio Specialist
