Originally published at: Monthly market roundup – August 2023 – InvestEngine Insights
Welcome to the latest edition of our monthly market roundups. This time we’re looking at the key topics from August, from equities to monetary policy. We’ll also take a look at some of last month’s more unusual market stories.
UK headline inflation fell to 6.8%, down from 7.9% the previous month, it was announced in August.
The drop in headline inflation was predominantly caused by lower gas and electricity costs, following the reduction in Ofgem’s energy price cap:
However, stripping out food and energy prices, core inflation rose at an unchanged annual rate of 6.9% in July. Within core inflation, services prices increased at a faster pace, with air fares and holiday costs continuing to prop up prices:
Both the unchanged core inflation reading and the rising services inflation will keep pressure on the Bank of England to maintain its tight monetary policy stance.
Interest rates continue to rise
The Bank of England raised interest rates by 0.25% to 5.25% and warned borrowing costs are likely to remain elevated despite slowing inflation. The central bank’s Monetary Policy Committee voted by six to three to take interest rates to a 15-year high, with two members preferring a larger 0.5% move and one voting to pause.
BoE governor Andrew Bailey emphasised interest rates would need to stay at high levels, saying that “in order to get inflation back to target, we are going to have to keep this stance of policy”.
Market implied expected interest rates moderated slightly over the month, however, due to the signs of inflation beginning to ease:
Equity markets falter
August was a tough month for equity markets, with all major markets posting losses for the month.
Emerging Markets led the way, posting a 4.3% loss in August amid economic data from China indicating the country recently slid into deflation for the first time since 2021. Consumer prices fell by 0.3% year on year in July, alongside the government stopping publishing data on youth unemployment, shortly after it hit a record high of 21% – both of which weighed on consumer confidence and heightened concerns about economic stability in the country.
The US also fell, dropping 1.5% in dollar terms. This was caused by a combination of a factors, including the knock-on effect of the data from China, as well as comments from central bank officials indicating they still see “upside risks” to inflation (which could lead to more rate hikes), and also several regional and larger banks having their credit ratings downgraded by S&P Global. A stronger dollar helped sterling investors, with the US market up 0.2% in sterling terms.
The UK market fell 2.5% as result of stronger-than-expected UK growth data, as well as news that wages rose 7.8% in the three months to June, which was the fastest pace on record. Both contributed to fears that the Bank of England may be required to keep rates higher for longer in the hopes of bringing inflation down to its 2% target.
Europe posted losses of 2.4% on the back of concerns that global interest rates could stay elevated for longer as well as being affected by the weak Chinese economic data.
Bond yields hold steady
As short-term bond yields are closely tied to interest rates, the concerns over the “higher for longer” narrative caused the UK 2-year government bond (gilt) yield to rise slightly from 5.0% to 5.2%.
Longer-dated bond yields tend to be less affected by interest rate movements and are more dependent on macroeconomic factors, including economic growth and recessionary expectations. The UK 10-year gilt yield remained relatively static, seeing only a slight increase from 4.3% to 4.4%.
Versus the US dollar, sterling weakened by 1.3% in August, falling from a rate of $1.2835 at the start of the month, and finishing at a rate of $1.2673. The movement over the month was due in large part to the US dollar’s strength caused by the Fed’s hawkish rhetoric lifting US dollar yields.
Versus the Euro, the pound strengthened slightly over June, rising from a rate of €1.1671 to finish the month at €1.1688.
Off the beaten track
Now, let’s take a look at some of the more unusual market news stories from August.
A man buys a staircase for £25k
An entrepreneur spent £25,000 on a disused stairwell to provide a rent-free space in London for small businesses.
You can’t annualise 3 weeks of hypothetical performance
Fintech investment adviser Titan Global Capital Management agreed to pay over $1 million to settle charges from the SEC for touting annualised crypto performance results as high as 2,700% without telling investors they were extrapolated from a “purely” hypothetical three-week period.
The fund that never goes down
The manager of the All Weather Alpha Fund I LP allegedly talked their fund administrator into an arrangement where the administrator would offset the value of any losses the fund incurred by recording a “receivable due from the manager” reimbursement, resulting in no reduction to the Fund’s NAV. At no point was the manager actually liable to the fund for losses.
UPS drivers earning more than investment bankers
UPS’ CEO said drivers will average $170,000 in pay and benefits such as health care and pensions at the end of a five-year contract that the delivery giant struck with the Teamsters Union last month, averting a strike.
Fast food companies have been telling Whoppers
McDonalds, Burger King, Taco Bell, and Wendys are all facing lawsuits accusing the companies of misleading customers about the size of their burgers. They allege the pictures of the food on menus and adverts do not live up to reality.
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