Late rally from equities unable to prevent modest losses in August
Market Snapshot
What is happening in the US?
It was also a difficult month for bonds where long-term interest rates climbed higher in the run up to the Jackson Hole conference, with investors concerned of a hawkish narrative. What transpired was a hawkish tone by Fed Chair Jay Powell, without a commitment to future policy tightening. The Fed will be hoping that this tone will prevent market-based inflation expectations from rising, as this would require further rate hikes, which would increase the risks of recession.
Clearly, the Fed will be keeping a close eye on economic data to assess their progress in subduing inflation. Employment data is one such key indicator and has demonstrated incredible resilience despite surveys and anecdotal evidence showing a massive shortage of candidates. That said, this month finished with data suggesting a pullback in the labour market, after speculation a few days earlier with soft Job Openings and Labour Turnover (JOLTS) and Jobless claims data. The unemployment rate rose to 3.8%, the highest since February ’22.
In terms of stocks, Nvidia shares reached an all-time high after the chipmaker’s revenue more than doubled in the latest quarter – outstripping even the heightened Wall Street estimates. Incredibly, the AI-fuelled bonanza has tripled the company’s market value year-to-date!
Property sector data shows a weakened economic recovery in China
In China, data released this month indicated that the economic recovery weakened with disappointing retail sales and industrial production in July, as well as real estate investments and new home sales declining substantially on a year-over-year timeframe.
Foreign investors sold a record $12bn worth of Chinese stocks in August with support measures from Beijing failing to inspire confidence in the world’s second-largest economy amid what appears a worsening crisis in the property sector. In addition, tensions with Washington continue to simmer, with political risk another challenge to consider. However, more recently, Chinese stocks were boosted by China introducing a 50% stamp duty cut on share dealing.
What is happening in Europe?
As well as taking steps to repair relations with neighbours Greece, Turkey took the unlikely decision to boost interest rates in August, in one of the clearest signs that the central bank has broken away from unorthodox monetary policy, to mitigate rampant inflation.
The one-week repo rate was lifted to 25%, the third rate rise in as many months demonstrating the dramatic shift in economic policies since President Erdogan was re-elected in May. This should go some way in reassuring investors that policy orthodoxy is returning to the region.
Not forgetting our home economy!
UK consumer spending rebounded in August, but growth remained below the pace of inflation. Retail sales rose at an annual rate of 4.1% in August, up from 1.5% in July (which was an unseasonably wet/cold month), and above the three-month average of 3.6% according to figures from the British Retail Consortium (BRC).
The CEO of the BRC said the performance was helped by improved consumer confidence and driven by a jump in holiday spending, such as sun cream. The success of Barbie and Oppenheimer meant entertainment industry enjoyed another strong month.
Written and prepared for Crowe Financial Planning UK Limited by John Moore (Senior Investment Manager at RBC Brewin Dolphin).
