Global equity markets sank over the month of August amid growing concerns over China’s worsening economic data and renewed weakness in its real estate sector. This sentiment was reflected in falling bond prices and rising sovereign yields. Developed markets outperformed emerging markets. The US dollar strengthened against all major currencies as it benefitted from strong domestic growth rivalling a weaker global backdrop. Energy prices rose amid ongoing production cuts from Saudi Arabia and other Opec+ (Organization of the Petroleum Exporting Countries) producers.
US
In the US, investors continued to speculate over the Federal Reserve’s next actions and whether the current interest rate tightening cycle ended with the rate rise in July. Therefore, market movements continued to be driven by inflation and economic data released during the month.
Retail sales improved in July coming in higher than expectations, likely driven by a strong discount Prime Day. Whereas, purchasing managers’ index (PMI) data, which provides insights into business activity, for manufacturing and services showed a softening in economic activity.
The unemployment rate rose from 3.5% in July to 3.8% where most projections had held expectations of an unchanged reading. This showed a slight cooling in the labour market but employment in the US remains resilient. And finally, headline inflation ticked up to 3.2% from July’s 3%. The data released spurred market participants to increase the probability of a ‘soft landing’ scenario and no future rate hikes despite comments from Powell at the annual Jackson Hole symposium that kept potential future rate hikes firmly on the table.
August saw Fitch Ratings, a main credit rating agency in the US, downgrade the US government’s credit rating from AAA to AA+, citing an erosion of governance and the growing debt burden as key motives for the decision. A decision which, despite plenty news covering, had little impact on 10-year yields. Later in the month, however, the US Treasury announced further, higher-than-expected, borrowing intentions over the coming months which led to a rise in 10-year yields and a fall in 2-year yields, shrinking the steepness of the currently inverted US yield curve. Energy stocks were the most resilient over the month, as prices lifted on the back of tighter oil supply.
