Please see the below article from Brooks Macdonald detailing their discussions on the Federal Reserve and concerns about the French fiscal situation. Received this morning 27/08/2025.
What has happened?
The Federal Reserve and its future independence were in focus again yesterday, and in France both equities and government bonds came under pressure due to the government’s upcoming confidence vote.
President Trump’s pressure on the Fed continues
President Trump’s continuing attempt to remove Fed Governor Lisa Cook has sparked legal and institutional pushback, with Cook’s lawyer announcing plans to challenge the firing and the Federal Reserve reaffirming that governors can only be removed “for cause.” With two current members already dissenting in favour of cuts and Stephen Miran nominated to fill another seat, replacing Cook could tip the balance. Reports also suggest Trump is exploring ways to exert more influence over the Fed’s 12 regional banks, whose presidents rotate onto the FOMC and are up for approval in early 2026. Markets responded with a notable further steepening of the yield curve as the difference between 2yr and 30yr yields rose to the highest since January 2022, as investors priced in a more dovish policy outlook with the futures markets now expecting over 100 basis points of rate cuts by mid-2026.
Concerns about the French fiscal situation mount
The focus on France intensified as Prime Minister Bayrou faces a likely no-confidence vote on September 8, with major opposition parties pledging to vote against the government. This political uncertainty has recently weighed heavily on French assets, with the CAC40 underperforming regional peers and major banks seeing sharp declines. The French 10-year yield moved to within 6bps of Italy’s, the tightest since 2003, highlighting investor unease.
What does Brooks Macdonald think
Despite this uncertainty, equity market investors remain sanguine, with the S&P500 closing last night only very marginally below its all-time high. Nvidia, widely seen as the bellwether AI stock, reports earnings today after the US market closes. Analysts’ revenue expectations have risen since June but given Nvidia’s c30% share price rise in USD terms year to date, any disappointment will spook investors.
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Alex Clare
27/08/2025