Global markets faced a challenging August, characterized by mixed economic data, a persistently hawkish Federal Reserve, rising sovereign bond yields and worries over renewed weakness in the Chinese real estate sector. However this behaviour for markets at this time of the year isn't out of character. History tells us that August has been the second-worst performing month of the year for stocks going back more than three decades, especially in a year before a presidential election.
Among the major Wall Street indices, the tech-heavy Nasdaq Composite Index recorded its worst monthly performance of 2023 – down 2.2% MoM, while the blue-chip S&P 500 slipped 1.8% MoM and Dow Jones declined by 2.4% MoM. These pullbacks are a contrast to the market rally seen earlier this year where The Nasdaq Composite had its best first-half performance in 40-years in 2023 and the S&P 500′s gains over the first six-months of the year marked the index’s best start to a year since 2021.
Meanwhile, economic data from China has been disappointing, as the world’s second-largest economy reported much weaker-than-expected July retail sales growth in August, while industrial production also rose less than expected. This slowdown in China’s economy could spell trouble for markets around the world, including the U.S., given the sheer number of major corporations that rely on the country as a strong source of revenue.
Yet despite stock indexes closing out a tough August by posting losses for the month, the overall outlook for year is still looking positive.
In the U.S., the annual Jackson Hole symposium hosted by the Federal Reserve Bank of Kansas City was a key event for August. Federal Reserve Chair Jerome Powell acknowledged progress in controlling inflation but emphasized the Fed's commitment to a restrictive policy until significant inflation reduction occurs, signalling a willingness to raise rates further if necessary. Economic data remained solid, with the core consumer price index (CPI) moderating to 4.7% year-on-year, and headline inflation edging up slightly to 3.2% due to excluded components like food and energy. Job market data showed resilience in July, with retail sales exceeding expectations, but the Composite Purchasing Managers' Index (PMI) fell significantly in August.
In the eurozone, annual inflation remained stable at 5.3%, slightly above consensus expectations, but core inflation improved slightly to 5.3% year-on-year. The European Central Bank expressed uncertainty about economic growth and inflation despite a strong labour market, as the composite PMI hit its lowest level since 2012.
In the UK, The Bank of England raised its key interest rate to 5.25%, the highest in 15 years. Despite this, the U.K.'s economic trajectory showed resilience, with GDP expanding by 0.5% in June, beating consensus expectations. Inflation in the U.K. decreased to a 15-month low in July, with prices rising 6.8%, in line with predictions. The UK’s blue-chip FTSE-100 closed 3.4% in the red in August. Energy was the only sector to rise over the month against the backdrop of higher oil prices.
Emerging market (EM) equities fell in August against a backdrop of deteriorating risk sentiment. Much of this was related to concerns that strength in the US economy will keep interest rates higher for longer but ongoing weakness in the Chinese economy and concerns about the property sector also contributed. EM underperformed global equities, with the majority of markets posting declines in the month.
Japan's economy posted its third consecutive quarterly expansion, driven by robust export growth. However, Japan's stock market had an underwhelming August, with the Nikkei index falling 1.7%, following two positive months.
China faced disappointing economic indicators, with consumer inflation turning negative in July, a deflationary trend in the Producer Price Index (PPI), and underperforming retail sales. In response, China implemented measures to stimulate the economy and support its currency, including interest rate cuts and reducing transaction taxes on stock purchases. Hong Kong's Hang Seng Index dropped 8.5% in August, its largest monthly decline since February, while the Shanghai Composite Index fell 5.2%
Colombia and South Africa were the worst-performing markets in the month with their currencies also depreciating against the dollar.
The BRICS (Brazil, Russia, India, China, and South Africa) bloc met for its annual leader’s summit in Johannesburg, South Africa on August 22–24, 2023. The highlight of the fifteenth summit was the agreement to admit six new member countries: Argentina, Egypt, Ethiopia, Iran, Saudi Arabia, United Arab Emirates, who will officially join the group in January 2024.
South Africa’s (SA’s) FTSE JSE All Share Index declined by 5.1% in August (+2.6% YTD), while the FTSE JSE Capped SWIX retreated by 4.8% MoM. Highlighting the performances of the biggest JSE-listed shares by market cap, the largest company on the exchange, BHP Group, disappointed as resources counters came under pressure, falling by 1.4% MoM. Prosus, the second-biggest listed company, dropped 7.3% MoM, Naspers lost 8.5% MoM and Richemont declined 6.7% MoM. However, Anheuser Busch InBev, the third-largest company on the JSE, jumped 5.5% MoM, with British American Tobacco up 4.9% MoM.
After two consecutive months of gains, the rand fell by 5.8% against the greenback in August to end the month at 18.87/USD.
Credits: Strategic IQ, XE.com, Bloomberg