There's something delightfully paradoxical about contemplating the American constitution whilst enjoying a leisurely Sunday morning in Gothenburg; Sweden's maritime jewel, where Volvo was born and Nordic sensibility still reigns supreme. As I sit here overlooking the boats traversing the Göta älv, Trump's unprecedented assault on Federal Reserve independence feels as distant as it does deeply disturbing.

Yes, the irony is not lost on me. I am here in the city that gave us the three-point seatbelt and countless other innovations prioritizing human safeguards over corporate convenience, I'm researching headlines about a president who treats constitutional safeguards like inconvenient speed limits.

Yet as conversations around me drift between traditional late-August crayfish party preparations, Gothenburg Cultural Festival discussions, and Volvo's latest automation safety initiatives, I'm struck by this week's extraordinary contradiction. While Trump launched his most brazen attack yet on Fed independence and NVIDIA delivered mixed signals about AI's unstoppable march, global markets responded with the enthusiasm of Swedish festival-goers discovering free fika!

Pour yourself something appropriately Nordic as Week 35 delivered yet another reminder that in our current era, Fed finality trumps presidential twittering, and well-governed central banks can provide stability even when democracies stumble into constitutional crisis.

Recap: Where We Left Off (Week 34)

Last week's Jackson Hole dovish echo carried Powell's carefully orchestrated message from the Wyoming mountain retreat emphasing a "shifting balance of risks" toward employment weakness, sending yields tumbling and September rate cut expectations soaring to 99.9%. Yet the dovish pivot occurred against a backdrop of escalating geopolitical chaos: Trump's federal takeover of Washington DC, Britain's immigration crackdown, Gaza's death toll climbing past 123 in a single day, Hurricane Erin achieving Category 5 status, and continued Ukraine pipeline disruptions.

And yet, Week 34's most telling moment wasn't Powell's dovish signalling but markets' response to it: the VIX plunged to Christmas Eve lows while equity indices hit fresh records amid National Guard deployments across Washington. The disconnect crystallized in markets that chose cheaper money over constitutional crisis - a dangerous precedent suggesting financialized capitalism has entirely divorced itself from democratic fundamentals.

If you missed the last dispatch: When Central Bankers "Trump" Political Chaos – Week 34

This Week 35, 2025: When Fed Finality Meets Constitutional Crisis

Weekly Market Table

US & Global Equities

• S&P 500 and NASDAQ: Yet another week of record highs, but this time amid constitutional crisis. Despite Trump's attempted firing of Fed Governor Lisa Cook, the S&P 500 gained 1.1% to 5,615 and NASDAQ rose 1.4% to 17,878, both closing at all-time highs. NVIDIA's mixed earnings; $46.7B revenue beat expectations but zero China H20 chip sales sent shares down in after-hours trading, yet markets chose Fed dovishness over democratic upheaval.

• Europe: The STOXX 600 gained a modest 0.4%. Mixed inflation data complicated the picture with France's CPI easing to 0.8% while Germany's jumped to 2.1%. Mining stocks led gains while French banking shares declined on budget dispute concerns, yet the region showed resilience amid Anglo-American institutional chaos.

• Emerging Markets: EM sovereign debt found support from yield compression hopes, but equity markets struggled with NVIDIA's zero China revenue highlighting geopolitical supply chain fragmentation. Asia remains hostage to Beijing's stimulus timing and Washington's constitutional theatrics.

Gold, Digital Assets and Other Assets

• Gold: Spot rallied to $3,315, down 0.6% for the week despite hitting fresh record highs above $3,448 as Fed rate cut probabilities surged to 95%. Dollar strength created headwinds for the yellow metal, yet gold maintained its safe-haven appeal amid constitutional crisis and geopolitical tensions, posting monthly gains of 4.1%.

• Bitcoin: Extended its pullback to $117,100, declining 0.4% as digital assets faced their largest weekly outflows since March at $1.43bn. Despite institutional resilience with 92% of onchain holdings still in profit, crypto markets absorbed over $500M in long liquidations as volatility compressed to historic lows before Powell's dovish pivot provided late-week relief.

• Oil: Brent crude slipped to $77.35, gaining just 0.2% as geopolitical tensions battled demand concerns and OPEC+ production increases. Ukrainian attacks on Russian export terminals provided early-week support, yet reports of potential ceasefire talks and weaker US demand fundamentals capped gains.

Macro & Policy

• Fed Policy: Rate cut probability for September hit 95% after Trump's unprecedented attempt to fire Governor Lisa Cook created constitutional crisis amid dovish momentum. Friday's PCE data at 2.9% meeting forecasts and keeping cut odds intact despite Trump's assault on Fed independence.

• ECB & Global Central Banks: The ECB held rates at 2.15% after eight cuts brought borrowing costs to November 2022 lows, effectively ending its easing cycle. With eurozone inflation at the 2% target.

Geopolitics

• Fed Independence Crisis: Trump's attempted firing of Governor Lisa Cook represented the most direct assault on Federal Reserve autonomy since the 1970s, with Cook securing a restraining order and filing constitutional challenges. The unprecedented move sent markets into brief turmoil before dovish Fed signals overwhelmed political concerns, yet raises fundamental questions about central bank credibility in a second Trump term.

• Middle East Tensions: Israeli ground operations continued despite international pressure, while Ukrainian attacks on Russian energy infrastructure maintained supply disruption risks. Oil markets absorbed geopolitical premiums with surprising calm, suggesting either dangerous complacency or that Fed dovishness has overwhelmed traditional risk assessment mechanisms across asset classes.

• European Stability Premium: The contrast between European policy predictability and US constitutional crisis created subtle but meaningful capital flows toward jurisdictions with stable governance frameworks and credible central bank independence. Shame the UK wasn’t high on that list!

What’s Pertinent This Week (Week 35)?

Monetary Policy Meets Constitutional Crisis

President Trump’s failed attempt to oust Fed Governor Lisa Cook precipitated a constitutional showdown, yet markets shrugged it off as the Fed doubled down on easing. September rate-cut odds surged to 95% after Governor Waller reaffirmed “25 bp cuts over the next 3–6 months” and core PCE held at 2.9%. The key takeaway: central bank guidance continues to overshadow threats to monetary independence.

Whilst over the pond, the ECB opted to hold rates at 2.15% after eight consecutive cuts, citing 2% inflation and splits over trade and energy risks. President Lagarde’s “in a good place” assessment underscores a cautious, data-dependent stance, contrasting sharply with the Fed’s pre-announced easing.

Geopolitical Complacency Amid Persistent Risks

Despite renewed Israeli offensives and Ukrainian strikes on Russian energy, Brent crude ended virtually unchanged at $77.20 amid OPEC+ supply increases and waning demand concerns. Gold flirted with record highs before easing to $3,315 on dollar strength, while Bitcoin slid below $118,000 amid $1.4 billion in institutional outflows which was the largest since March. Markets appear increasingly immune to headline shocks.

Emerging markets again highlighted structural limits. Sovereign debt rallied on yield-compression hopes, but equities faltered under China’s weak factory data and demographic headwinds. NVIDIA’s zero China H20 chip sales underscored how quickly geopolitics can reshape tech supply chains.

Is there a premium for being a stable government?

Finally, a European stability premium is taking hold. Investors, deterred by U.S. constitutional chaos and the U.K.’s harsh immigration crackdown, are gravitating toward Nordic and Western European markets for policy predictability and credible central bank frameworks. As September data rolls in, adaptability to policy surprises and geopolitical developments will define alpha generation?

Private Equity Insights

Watch Out September!

In the previous week’s dispatch I mentioned ‘watch out September’ and here as that nefarious month starts I elucidate…..

September has long carried a reputation as the weakest month for equity performance, and this year looks no different. As summer liquidity thinned volatility spikes become more pronounced once desks return in early September. With bid-ask spreads widening and average daily volumes 10–15% below the yearly norm, even modest news can trigger outsized moves, so watch out for volatility!

Historically, the S&P 500 has posted an average September loss of 0.8%, and two-thirds of Septembers since 1950 have been negative. This seasonality reflects corporate calendar resets, fiscal-year planning, and the unwinding of summer positioning. Private equity deal flow mirrors this pattern: transaction workshops slow in August, only to resume at full throttle in September, a month when sponsors recalibrate valuations with new market volatility baked in.

This year, persistent central bank dovishness has imbued markets with confidence, yet it may mask calendar-driven risks. September rate-cut odds at 95% suggest policy clarity is already priced in, leaving seasonality as the primary driver of swings. Volatility indices typically peak mid-September, and margin calls can exacerbate drawdowns in thin conditions.

In energy markets, Brent crude’s narrow trading range belies underlying geopolitical tension, from Israeli offensive operations to Ukrainian strikes on Russian energy infrastructure. Markets appear content to treat these shocks as background noise which in my opinion is an attitude that may reverse sharply once seasonal flows return.

For investors and private equity sponsors alike, the prudent course is to anticipate the seasonal uptick in volatility. Incorporating volatility hedges, entering new positions gradually, and maintaining dry powder to capitalize on dislocations will be essential strategies as September unfolds.

Robots and AI are the new workforce: the demographic initiative

With Europe losing 400,000 workers annually (Germany) and Japan 600,000, shrinking workforces force PE to pivot from labour-intensive models toward automation infrastructure and AI-driven productivity. Global fertility rates collapsed from 5.0 (1950) to 2.24 today.

In particular workforce delice is unprecedented. China's installation of 290,000 industrial robots in 2024 wasn't just economic, it was demographic destiny. Western PE must redirect capital toward automation "feeding chains" for the new workforce namely, energy systems, rare earth mining, battery manufacturing and similar. More on this theme in the coming weeks.

Financial Repression Still on the Cards?

Negative real yields across developed markets drive pension and insurance capital into risk assets. Government debt crowds out alternative investment, starving direct lending and structured credit markets of capital, demanding greater scrutiny of cross-border flows and digital asset exposure.

Private Equity Deal Flow Narratives: AI and RWA

With private credit and LBOs priced for "higher for longer," sponsors favour cash-generative, recession-resilient platforms over multiple expansion. The waiting game prolongs until policy clarity emerges, prioritizing visibility and strong governance over leverage.

Only 30% of fund managers have integrated AI despite its potential for streamlining due diligence and operational efficiency. Early adopters using predictive analytics and automated decision-making gain competitive advantages, while laggards face operational risks.

Closing Thoughts & Week Ahead

As Week 35 concludes, one theme stands above all: the growing divergence between policy signals and real-world risks. The Fed’s dovish commitment has overridden political upheavals highlighting how central bank guidance can dominate market sentiment.

But remember, thin summer liquidity and September’s seasonal volatility remain potent reminders that complacency carries its own dangers. So looking ahead, September’s calendar of data releases and central bank meetings will test the market’s conviction and could snap the current calm.

Private equity sponsors must stay nimble: seasonality, policy shifts, and structural trends (demographics, automation, financial repression) will continue to reshape valuation and deal dynamics.

Positioning for the coming weeks requires balancing confidence in central bank support with hedges against seasonality and geopolitical re‐risks. Those who integrate volatility strategies, capitalize on emerging automation opportunities, and maintain disciplined governance will be best placed to navigate September's turbulence and set the stage for Q4 outperformance.

Ed’s Final Word

These perspectives are mine alone .. and certainly not Beaufort’s or anyone prudent enough to keep quiet. I hope they’ve sparked ideas, but your best education comes from your own research and advice from a trusted financial advisor.

In volatile times, especially as September ushers in, questions can flip certainties on their heads. Embrace adaptability over conviction: hedge volatility, invest in automation-driven growth, and anchor in robust governance.

Anyone claiming omniscience is either bluffing or delusional. Stay curious, keep refining, and, above all, keep your coffee strong!

Week 35, 2025 - When the siren call of cheap money drowns out every warning, strap yourself to the mast listen for that elusive of sirens; September.

For Further Reading

• Financial Repression: What is it? – World Economic Forum (https://www.weforum.org/agenda/2024/06/financial-repression-government-policy/)

• The Stablecoin Race – Atlantic Council (https://www.atlanticcouncil.org/blogs/new-atlanticist/the-great-stablecoin-race-is-on/)

• Unlocking AI’s True Potential in Private Equity Value Creation – Roland Berger (https://www.rolandberger.com/en/Insights/Publications/Unlocking-AI-s-true-potential-in-private-equity-value-creation.html)

• Mind the Productivity Gap Report – EY (https://www.ey.com/en_uk/news/2024/05/ey-mind-the-productivity-gap-report)

• Private Equity Investment in the Picks-and-Shovels of the AI Boom – JD Supra (https://www.jdsupra.com/legalnews/private-equity-investment-in-the-picks-6185081/)

• AI Infrastructure Becomes Private Equity’s New Power Play in 2025 – Private Markets Insights (https://www.privatemarketsinsights.com/post/ai-infrastructure-becomes-private-equity-s-new-power-play-in-2025)