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August 2022

Global stocks and bonds suffered a turbulent month as markets recalibrated rate-hike expectations after major central banks vowed to step up their fight against inflation, despite fundamental risks to the growth outlook. Developed market equities (MSCI World) (-4.1%) pared a portion of their July gains while emerging market stocks (MSCI EM) (+0.5%) edged higher on the back of positive economic momentum in several markets. In August, all equity sectors within the MSCI World Index, except Energy (+1.9%), posted negative U.S. Dollar total returns. On a factor basis, Value (MSCI World Value) (-3.0%) outperformed Growth (MSCI World Growth) (-5.3%), whilst bonds (Barclays Global Aggregate) provided little protection – down -3.9% over the month.

Investor sentiment was challenged in August, as several hawkish messages from U.S. central bank members quashed investors’ hopes of a dovish pivot. The release of the Federal Open Market Committee (FOMC) July policy meeting minutes saw policymakers reiterate that ongoing rate hikes remain appropriate. Near month end, Federal Reserve (the Fed) Chair Jerome Powell signalled that the Fed is going to keep raising rates to combat decade-high inflation, regardless of what Wall Street thinks. The hawkish comments were made during the Kansas City Fed’s annual policy forum in Jackson Hole. Consequently, the fed funds futures market is now pricing a nearly 75% probability of a 0.75% increase in September.

U.S. employment data was surprisingly robust, with July’s non-farm payrolls print showing that employers added more than double the number of jobs forecast, with nonfarm jobs increasing by 528,000 in July, compared to estimates of 250,000 jobs. The unemployment rate fell 3.5% and wages rose.

The global inflation picture remains gloomy, with August’s global prints revealing a challenging macro environment. Consumer price inflation (CPI) in the U.K. accelerated to 10.1% y/y in July, hitting double-digit growth for the first time in 40 years. Inflation in the Eurozone remained elevated (9.1% y/y in August), amid a renewed surge in natural gas prices. CPI in the area is expected to reach double digits in the coming months if natural gas prices don’t subside. In contrast, U.S. inflation eased in July, falling from 9.1% y/y to 8.5% y/y, while the month-on-month print showed consumer prices were unchanged from June. Core inflation, however, remains above the Fed’s target.

In the Eurozone, recession risks remain elevated. Gas prices continued to soar amid renewed Russian/European tensions, climbing +11% m/m. Severe heatwaves and droughts in Germany and China have begun causing logistic disruptions which threaten to further darken the economic environment. In the U.K., the Bank of England raised its policy rate by 0.5% to 1.75% and expects a recession to begin in the fourth quarter of this year.

In South Africa (SA), CPI jumped 7.8% y/y in July – a 13-year high, although still behind international peers. Absa’s Purchasing Managers Index (PMI) rebounded in August to 52.1 after a dip in July (47.6). The business activity index rose back above the neutral 50-point mark for the first time since March. On the trade front, South Africa recorded a trade surplus of R24.8 billion in July, up from a surplus of R24.2 billion in June.

SA equities followed global peers lower in August. The JSE All Share index ended the month -1.8% lower, with resources (-4.1%) and property (-5.4%) leading the decline. Most miners struggled over the month on the back of a decline in commodity prices and a faltering global growth outlook. Thungela (+13% m/m) was the exception as global coal demand showed no signs of weakening.

SA’s 10-year government bonds held up relatively well. Ten-year yields ended the month slightly higher at 10.9%, up from 10.8%, while U.S. 10-year government bonds sold off, causing a +0.6% spike in U.S. yields. The rand depreciated by 2.9% m/m against the U.S. dollar, led by USD strength and worsening terms of trade.

Market moves of the month


Explore the chartbook for the month of August.

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