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In August, inflationary changes were mixed across the world. As such, many central banks are likely to continue to increase interest rates over the coming months. The month also saw widespread market volatility, with many global stock markets experiencing losses.
Whilst this article focuses in the main on August 2023 market news, there are references to events and market performance from previous months.
US
The headline Consumer Prices Index (CPI) increased in July to 3.2% year-on-year1. This was below economists’ predictions of 3.3%. The increase in the year-on-year CPI is attributed to the comparison to July 2022, when monthly inflation was negative1.
Despite the rise, experts have reported that underlying inflation is continuing to cool1. Fed chair Jerome Powell stated that progress has been made on bringing inflation back towards the target range, but that a further rate hike may still be necessary2.
The US labour market showed signs of cooling in July, with 187,000 jobs added – below the number economists predicted3. Additionally, retail sales in July were above expectations; the advanced retail sales report showed 0.7% seasonally adjusted growth for July4. These two measurements suggest that the country could avoid a recession this year5,4.
Even though economic data was strong throughout the month, the S&P 500 fell 1.6% in August, bringing its year-to-date returns to 18.7%6.
UK
Inflation fell in July in the UK. The CPI was recorded at 6.8% year-on-year, down from 7.9% in June7. Falling gas and electricity prices were the main cause of the drop, and while food prices continued to increase, this occurred at a slower pace than in July 20227.
Data from the labour market showed that wages hit a record growth rate in Q2 of 2023, as basic pay excluding bonuses grew by 7.8%8. Total wages also grew by a record 8.2% and unemployment rose unexpectedly from 4% to 4.2%8.
The wage growth was not far behind inflation in June, recorded at 7.9%. Consequently, economists have predicted that the Bank of England may increase the base rate at least once more before the end of 20239.
The FTSE All-Share fell by 2.5% across the month and 10-year gilt yields rose to 4.4%, an increase of 0.05% (five basis points )10.
Europe
Inflation in the eurozone remained at 5.3% year-on-year in August, the same figure that was recorded in July11. The unexpected stickiness led to intensified debate about whether the European Central Bank should continue to raise rates or if they have done enough to bring inflation back to its 2% target11. Market pricing seems to have anticipated a further hike later in the year11.
On the stock markets, the banking sector was hit by the Italian government’s shock announcement of a 40% windfall tax on bank profits in August12. Share prices for Italy’s two biggest lenders fell by 8.2% and 7.2% on the day of the announcement, and the Europe-wide STOXX 600 fell by 0.6%12.
Across the month, the MSCI Europe ex-UK index fell 2.2%13.
Asia
China’s post-Covid recovery slowed further in July as the economy experienced deflation for the first time in two years. The CPI fell by 0.3% year-on-year in July, caused by a combination of falling food prices, a drop in retail sales, and falling car prices14.
In response, the Chinese central bank cut key interest rates twice in August: it lowered the medium-term lending facility by 0.15% (15 basis points) and the one-year loan prime rate by 0.10% (10 basis points)15. The move has been criticised as “underwhelming” by many, and economists think that the housing sector may struggle to recover without further help15.
The uncertainty posed by China’s disappointing economic performance in recent months has weighed on global markets; the CSI 300 index fell by almost 6% in the first half of August16.
In Japan, Gross Domestic Product grew by 6% year-on-year in Q2, with quarterly growth recorded at 1.5%17. The Nikkei 225 index was up by 1% for the quarter17.
What this means for you
Global stock market returns were fairly muted in August, and were lower than they have been in previous months of the year.
If your portfolio doesn’t grow as you hoped it might in any given month, it can feel disheartening. Under some circumstances, it may cause you to question the investments you’ve made or feel tempted to move your money in an attempt to chase higher returns.
While these thoughts and emotions can be tough to ignore, it’s important to remind yourself of one of the key principles of investing: taking a long-term view. When you focus on the potential of your portfolio over years or even decades, it’s much easier to feel resilient during short periods of uncertainty or volatility.
So, if the returns on your portfolio have been disappointing in August, focus on the potential it has to deliver positive returns over the long term. Try not to let the returns of a single month discourage you.
Sources
1. 10.08.2023 Consumer prices rose by 3.2% annually in July, picking up for the first time in 13 months CNN
2. 25.08.2023 Fed's Powell: higher rates may be needed, will move 'carefully' Reuters
3. 04.08.23 US economy adds 187,000 July jobs in sign labor market is cooling The Guardian
4. 15.08.2023 Retail sales increased 0.7% in July, better than expected as consumer spending is holding up CNBC
5. 04.08.2023 Slower, but still strong US employment growth expected in July Reuters
6. 01.09.2023 Monthly Market Review J. P. Morgan
7. 16.08.2023 Consumer price inflation, UK: July 2023 Office for National Statistics
8. 15.08.2023 UK basic wage growth hits record, adding to Bank of England's worries Reuters
9. 15.08.2023 UK wages grow at a record pace, nearing the inflation rate CNN
10. 01.09.2023 Monthly Market Review J. P. Morgan
11. 31.08.2023 Stubborn euro zone inflation fails to settle ECB rate debate Reuters
12. 08.08.2023 Italian windfall tax spooks investors, bank stocks tumble Reuters
13. 01.09.2023 Monthly Market Review J. P. Morgan
14. 09.08.2023 Chinese economy slips into deflation as recovery falters and demand slows The Guardian
15. 21.08.2023China disappoints investors with ‘underwhelming’ decision on key interest rate CNN
16. 18.08.2023 Chinese authorities attempt to revive flagging economy amid contagion fears Sky News
17. 14.08.2023 Japan GDP grew 6%, easily beating expectations on robust exports CNBC
Please note: This guide is for general information only and does not constitute advice. The information is aimed at retail clients only.
The content of this guide was accurate at the time of writing. While information is considered to be true and correct at the date of publication, changes in circumstances, regulation, and legislation after the time of publication may affect the accuracy of the guide.
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