September 25th, 2023
Your July and August global market update
After we reported a mixed bag of highs and lows in our May and June 2023 global market update, equities around the world sadly fell in many cases over July and August.
Keep reading to find out how equities performed in the UK, US, Asia, and Europe – and how our team of financial experts can help you manage your investments in the months and years ahead.
In July, the Office for National Statistics (ONS) revealed that inflation had eased to 7.9% in the year to June 2023, down from 8.7% in the previous month.
Then, in August, the ONS posted data showing that inflation had slowed again, standing at 6.8% in the 12 months to July 2023. UK inflation then reduced again to 6.7% in the year to August, the ONS says.
This easing of inflationary conditions, which peaked at a 40-year high of 11.1% in October 2022, comes as welcome relief. In part, this can be attributed to the Bank of England (BoE)’s 14 consecutive base interest rate hikes since December 2021, bringing the rate to 5.25%.
There’s also falling energy prices to consider – these have almost certainly contributed to the recent fall in inflation.
In combination, this has helped to slow consumer spending and curb rising inflation, albeit slowly.
Despite the good news, though, the UK FTSE All-Share index posted -2.5% negative growth at the end of August, JP Morgan reports. This could be down to low investor confidence in the face of a high base rate. And, the BoE’s Monetary Policy Committee (MPC) has made it clear that “if there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required”.
Essentially, until inflation reaches the BoE’s target of 2%, it could be that interest rates remain high – something which can affect investments, particularly gilt and bond holdings, adversely.
According to Trading Economics, US inflation rose to 3.2% in July, marking a turn from the 12-month inflationary decline the US has experienced.
This rise in inflation comes after the Federal Reserve (Fed) halted its continued central interest rate rises in June, a move which empowered investors and helped US stocks bounce back after an era of turbulence. The report from JP Morgan suggests that the Fed has “left the door open to more interest rate hikes” as inflation remains an ongoing concern in the US.
Last time, we reported that the US S&P 500 ended June with an 8.7% return. Now, things have pivoted again, although in meagre terms compared to the volatility seen in 2022; the S&P 500 posted a -1.6% return at the end of August.
As we reported in our last update, though, the US economy defied forecasts and grew by 2.1% in Q2 2023. So, although the S&P 500 posted negative growth in August, this seems a minor inconvenience amid a relatively strong economic outlook for the country.
If you have US holdings, it’s important not to panic about any downswings your investments experience. The stock market often fluctuates; your long-term investment plan is what matters most.
As conflict continues in Ukraine, eurozone inflation has remained “sticky”, falling to 5.3% in July and remaining there in August.
Persistent inflation leads forecasters to believe that the European Central Bank (ECB) will continue to raise central interest rates, three of which have risen by 0.25 percentage points in August.
As far as the economy is concerned, Eurostat reports that eurozone Gross Domestic Product (GDP) grew by 0.3% quarter-on-quarter in Q2, prompting hopes for continued growth in Q3.
In spite of some positive outcomes this year, the MSCI Europe (excluding UK) index reported a dip of -2.2% at the end of August, according to JP Morgan. The report claims that this index has been “dragged down by the banking sector after the Italian government announced a tax on banks’ excess profits”.
Indeed, CNBC calls this a “shock tax” that places a 40% burden on profits made by large banks. After intense backlash, the Italian government said this tax would be capped at 0.1% of a bank’s total assets, Politico reports.
In essence, despite the ongoing war in Ukraine, European economies remain relatively stable. While inflation persists in the region, the ECB could be required to act further.
Finally, while western regions are still experiencing inflation, data from China reveals that the country experienced a deflation rate of -0.3% in July.
Perhaps contributing to this is a disappointing level of retail sale growth; JP Morgan reports that retail sales increased by 2.5%, compared to the forecasted 4.5%. In terms of the stock market, Chinese officials have begun taking measures to increase investor activity, including cutting the Stamp Duty owed on stock trading by 50%.
In order to address deflation and increase consumer activity, the People’s Bank of China (PBoC) decreased central interest twice in August alone, bringing it to 3.45% in August, Trading Economics reports.
As a result of the Chinese economy’s rocky journey to recovery from recent volatility and Covid-19, the MSCI Asia (excluding Japan) reported a -6.4% negative gain in August.
Contact a financial planner to discuss your investment goals
While month-to-month fluctuations could make you concerned about the value of your investments, keeping your overall investment goals in mind is essential.
We can work with you to create an investment plan that suits your appetite to risk, desired time frame, and ESG interests where appropriate.
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.