Global markets faced a challenging August, characterized by mixed economic data, a persistently hawkish Federal Reserve, and rising sovereign bond yields. Developed market equities, represented by the MSCI World index, ended the month down 2.3%, while their emerging market counterparts, MSCI World EM, fared even worse with a 6.1% decline. Fixed income assets didn’t provide much relief as the Bloomberg Global Aggregate Index experienced a 1.4% drop due to rising sovereign yields, notably the 10-year U.S. Treasury yield surging to 4.1%.
In the U.S., the annual Jackson Hole symposium hosted by the Federal Reserve Bank of Kansas City was a key event. Federal Reserve Chair Jerome Powell acknowledged progress in controlling inflation but emphasized the Fed’s commitment to a restrictive policy until significant inflation reduction occurs, signalling a willingness to raise rates further if necessary. Economic data remained solid, with the core consumer price index (CPI) moderating to 4.7% year-on-year, and headline inflation edging up slightly to 3.2% due to excluded components like food and energy. Job market data showed resilience in July, with retail sales exceeding expectations, but the Composite Purchasing Managers’ Index (PMI) fell significantly in August.
Wall Street indices faced headwinds, with the tech-heavy Nasdaq Composite Index posting its weakest monthly performance in 2023, down 2.2%. The S&P 500 dipped 1.8%, while the Dow Jones Industrial Average fell 2.4%, maintaining a modest year-to-date gain.
In the eurozone, annual inflation remained stable at 5.3%, slightly above consensus expectations, but core inflation improved slightly to 5.3% year-on-year. The European Central Bank expressed uncertainty about economic growth and inflation despite a strong labour market, as the composite PMI hit its lowest level since 2012.
The Bank of England raised its key interest rate to 5.25%, the highest in 15 years. Despite this, the U.K.’s economic trajectory showed resilience, with GDP expanding by 0.5% in June, beating consensus expectations. Inflation in the U.K. decreased to a 15-month low in July, with prices rising 6.8%, in line with predictions. The FTSE-100 ended August 3.4% lower.
Japan’s economy posted its third consecutive quarterly expansion, driven by robust export growth. However, Japan’s stock market had an underwhelming August, with the Nikkei index falling 1.7%, following two positive months.
China faced disappointing economic indicators, with consumer inflation turning negative in July, a deflationary trend in the Producer Price Index (PPI), and underperforming retail sales. In response, China implemented measures to stimulate the economy and support its currency, including interest rate cuts and reducing transaction taxes on stock purchases. Hong Kong’s Hang Seng Index dropped 8.5% in August, its largest monthly decline since February, while the Shanghai Composite Index fell 5.2%.
The BRICS (Brazil, Russia, India, China, and South Africa) bloc met for its annual leader’s summit in Johannesburg, South Africa on August 22–24, 2023. The highlight of the fifteenth summit was the agreement to admit six new member countries: Argentina, Egypt, Ethiopia, Iran, Saudi Arabia, United Arab Emirates, who will officially join the group in January 2024.
In South Africa, headline inflation declined year-on-year, nearing the midpoint of the South African Reserve Bank’s target range of 3% to 6%. The retail sales data for June continued to decline month-on-month.
Overall, August was a challenging month for global markets, marked by uncertainty, central bank actions, and mixed economic data. Investors remain cautious as they navigate these complex conditions.
