August delivered a mixed market picture: inflation reignited in the UK, equities pushed higher globally, and gold stole the spotlight.
UK
- UK inflation rose to 2.9% in July (June 2.6%), with the lifting of the energy price cap being the largest contributor. Price cap expected to rise further 4% in October.
- The UK Composite PMI (indicator of business activity, >50 is expansionary and <50 is contraction) rose to 52.5, increasing markedly from 48 in the previous month.
- UK equities posted modest gains, gaining +0.7%.Financials outperformed due to the ‘higher for longer’ rate environment as well as energy names.
- UK unemployment rose slightly to 4.9%, up from 4.8%.Vacancies are at a 5-year low. Survey suggests UK graduate jobs down 45% year-on-year.
- The Bank of England maintained interest rates at 3.75%, noting extent of energy shock still unknown (6 hold votes, 3 hike). Next meeting is set for the 17th of September.
Global
- Global equities rose +2.0% in August. The AI and US tech heavy index advanced following strong corporate earnings, whilst also seeing encouraging non-US participation in positive returns.
- US equities strengthened +2.0%, following a selloff in July. Tech drove returns with Nvidia alone gaining 10% as well as broad strong corporate earnings.
- Warsh’s first Jackson Hole speech was hawkish; noted underlying inflation trends have not improved; highlighting ‘work to do’, indicating rates could rise.
- Japanese equities gained +2.5%. A weaker yen supported exporters in key auto and industrial sectors, whilst the AI supply chain rode the coattails of improving sentiment.
- EM equities gained +2.0%. Weaker US dollar helped lower debt servicing costs alongside strong Asian tech performance.
- In Europe, equities rallied +0.8%. A flat oil price provided support for the industrials-heavy index whilst banks and healthcare performed strongly.
Fixed Interest
- Global government bonds were flat over August but not without intra-month volatility. Global inflation remained sticky with central banks focused on hiking rates.
- UK Gilts dropped -0.2%. Inflation concerns linger whilst Autumn budget will provide meaningful insight of Labour’s plans to reduce the deficit. 10yr Gilt closed at 5.07%.
- US Treasuries were flat over the month. Bessent intervened in the bond market by doubling the rate of long-dated buybacks to $4bn. 10yr Treasuries closed at 4.76%.
- Despite a flat month for bonds, fiscal concerns persist given heavily indebted government balance sheets, particularly in the US, where debt has hit $40trn.
- Among corporates, investment grade and high yield both saw modest gains, with high yield spreads tightening more than investment grade.
Other
- Sterling was broadly stable against major currencies despite intra-month volatility. GBP/USD ended at $1.35. GBP/EUR ended at €1.16.
- Oil prices dropped -1.0% in August, closing at $88/bbl. Despite being relatively flat, the price swung from lows of $79 to highs of $93 as news comes out regarding Iran.
- Gold gained +7.7%, closing at $4,481. Drivers during month were weak US jobs data and inflation concerns.
Sources: Morningstar, Financial Times, Investing.com
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