Whilst individual economies are at varying phases of economic revivals, August saw a continuation of the global economy’s path to normalisation. Notwithstanding rising COVID infection rates as societal restrictions are eased globally economic data releases over the month were largely indicative of a widespread economic expansion. Emerging markets marginally outperformed their developed counterparts even though the index’s largest constituent, China, underperformed the broader market as the nation’s authorities recent regulatory crackdown shifted during the course of the month to include online gaming and computer chips. The MSCI’s Emerging Market Index returned 2.6% with the MSCI’s developed market gauge returning 2.5%, both on a total return basis in USD.
The S&P 500 was up 3.0% over the course of the month as Federal Reserve (Fed) Chairman Jerome Powell’s Jackson Hole speech encouraged investors indicating a commencement of the tapering process by the end of the year as labour market statistics remain buoyant. The expectation is for an announcement to be made at September’s Federal Market Open Committee meeting on the Fed’s Rate forecasts and tapering confirmation. On the economic front the US economy continues to run hot, though expanding at the slowest rate year to date, Purchasing Manager Indices (PMI) data indicated expansion in private sector output with a print of 55.4 (>50 indicates expansion) and consumer prices were up 5.4%.
Comparable to the US the UK recovery has to some extent stalled with staff shortages in various fast growing sectors of the economy and disruptions to supply chains contributing factors. Nevertheless, seemingly past peak growth Composite PMI data still indicates the UK economy is in rude health with a final print of 54.8, a six month low. Employment data suggests the UK domestic economy is on a good footing, it was announced 95k people were recruited in the second quarter beating expectations of an 75k increase. A broad representation of the UK equity market, the FTSE All Share, was up 2.7% in local currency terms in August, moreover the more domestically orientated FTSE 250 climbed 5.3%.
Difficulties in respect to the initial implementation of the vaccination programme in Europe caused the Europeans to lag the UK and US in the reopening of their respective economies as such a robust growth expansion in the Eurozone persists. 70% of the population is now vaccinated and August Composite PMI data indicates the region’s private sector is expanding rapidly with a reading of 59.0 (marginally below July’s 15 year high of 59.8). The regions stock market was up 2.3% in August as measured by the MSCI Europe ex UK index.
Inflation expectations in Europe and the anticipation of tapering by the Fed caused Sovereign bond yields to rise (prices to fall) in August. Yields on the benchmark 10 year Treasury went from 1.22% to 1.31% over the course of the month whilst movements in Gilts and Bunds were more pronounced, the Bloomberg Barclays UK and German Government Bond Indices falling -0.5% and -0.9% respectively. Riskier areas of the fixed income market performed better however with US High Yield (+0.6%), Euro High Yield (+0.3%) and Emerging Market Debt (+0.9%) all recording a positive gain.
Source of all data: Bloomberg. The content of this article is for information purposes only and does not constitute an offer or invitation to any person. The opinions expressed are subject to change and are not to be interpreted as investment advice. You should consult an adviser who will be able to provide appropriate advice that is based on your specific needs and circumstances. The information and opinions contained herein have been compiled or arrived at from sources believed to be reliable and given in good faith, but no representation is made as to their accuracy, completeness or correctness.