Global markets are rapidly changing month-to-month due to various interconnected factors influencing supply and demand, investor sentiment, economic conditions, and ongoing geopolitical events.
Due to the speed and nature of global market changes, it can be difficult for investors to keep up to date with the current economic landscape without studying them on a day-to-day basis.
Our monthly market update aims to provide you with a clear and easy-to-understand overview of the global market landscape, highlighting a few important changes in several key markets across the globe, which might affect you and your investments.
Global Market Update: August 2023
August was a turbulent month in the markets due mostly to renewed concerns about the Chinese real estate market and underwhelming macroeconomic figures from China.
As shown in the chart below, global equities experienced a significant downturn with a total loss of 2.05% across all markets. Developed markets fared better than emerging markets, posting a 2.3% loss compared to a 6.1% decline.
Fixed income assets didn’t offer much respite for diversified investors as the Bloomberg Global Aggregate registered a 1.4% drop in August due to rising sovereign yields. Notably, the yield on the 10-year US Treasury surged by 16 basis points to reach 4.1%.
Worldwide oil prices remained relatively stable throughout the month, with concerns about growth in China balancing out the impact of production cuts. However, European natural gas prices experienced a substantial 23% increase in August. This spike was triggered by the potential disruption of up to 10% of the world’s LNG supply due to a possible strike at three liquefied natural gas (LNG) facilities in Australia, even though the European Union (EU) had already surpassed its gas storage target well ahead of the November 1 deadline.
*The graph above shows the changes in the main global markets over the month of August 2023.
USA Market Update- August 2023 Overview
In early August, Fitch (credit rating agency) downgraded the US government’s credit rating from AAA to AA+ due to concerns about unsustainable debt and deficits, along with increased political dysfunction. However, this decision had minimal impact on 10-year US Treasury yields, which only saw a slight increase. Later in the month, yields rose due to positive economic data and increased issuance.
US economic data remained strong, with job market indicators showing a still robust labour market in July, although slightly below consensus expectations. Retail sales also exceeded expectations.
The Consumer Price Index (CPI) saw a slight increase in July, driven by higher food and energy prices. However, core CPI decelerated slightly from the previous month. The Federal Reserve remains concerned about inflation and keeps the possibility of further rate hikes open, depending on data.
Despite the solid US economy, the S&P 500 fell 1.6% in August due to rising yields. Higher rates and increased volatility boosted the US dollar’s value by 1.7% on a trade-weighted basis.
UK Market Update – August 2023 Overview
In August, the Bank of England (BoE) increased its policy rate by 25 basis points (bps), bringing the Bank Rate to 5.25%. The BoE indicated its intention to maintain these higher interest rates for an extended period. Despite this tightening of monetary policy, the UK economy exceeded expectations in the second quarter of 2023, with GDP growing by 0.2% quarter-on-quarter, surpassing the consensus forecast of zero growth.
UK’s headline Consumer Price Index (CPI) fell in line with predictions to 6.8% year-on-year in July, down from 7.9% in June. Labour market data revealed robust growth in regular pay (excluding bonuses) at 7.8% y/y for the April to June 2023 period, the highest rate since comparable records began in 2001. In light of these developments, the market continues to anticipate further rate hikes from the BoE later this year. Consequently, the 10-year Gilt yield increased by 5 bps to reach 4.4% in August, while the FTSE All-share underperformed compared to developed market peers, declining by 2.5% over the month.
Europe Market Update – August 2023 Overview
Eurostat’s preliminary GDP estimate for the euro area showed a modest growth of 0.3% quarter-on-quarter in the second quarter of 2023. Despite this, the labour market in the euro area remains tight, with the unemployment rate reaching a record low of 6.4% in June.
Eurozone headline inflation remained unexpectedly stable in August at 5.3% year-on-year, while core inflation decreased slightly from 5.5% in July to 5.3% in August. Although there is some improvement, inflation continues to exceed the European Central Bank’s target, and financial markets are still anticipating further rate hikes by the ECB before the end of the year.
In August, the MSCI Europe ex-UK index declined by 2.2%, primarily due to the banking sector’s performance. This decline followed the Italian government’s announcement of a tax on banks’ “excess” profits. On the other hand, European bond yields remained relatively stable in August.
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China’s challenges are set to significantly influence the worldwide economy in the upcoming months, given that the country is responsible for nearly one-third of global economic growth. Concurrently, while inflationary pressures are subsiding, they have not entirely vanished, and central banks are likely to uphold tighter monetary policies beyond 2023.
Given this backdrop, our recommendation persists: Investors should maintain a well-diversified portfolio emphasising high-quality assets.
Please contact Brite if you have any questions about this market update or want to learn more about Brite and how we can maximise your pension and investment assets. Our experienced advisory team is here to help you make more informed decisions.
