Originally published at: Monthly market roundup – August 2024 – InvestEngine Insights
Welcome to the latest edition of our monthly market roundups.
Despite the volatility which roiled markets at the start of the month with the unwinding of the carry trade, the rest of August saw a period of calm when it comes to market volatility, with equity and bond markets finishing higher for the period. The month has been dominated by US earnings, the continuation of a steady decline in global inflation and the first interest rate cut in more than two years by the Bank of England.
In the off beaten section we look at sausages sales as an economic indicator, the ban of Twitter (X) in Brazil and how Lego is putting its sustainability plans on hold.
Inflation twitches
The UK’s headline inflation climbed to 2.2% from 2.0% in the previous month. The drop since the start of the year has been mainly driven by goods prices which are now falling compared to a year ago. Services inflation eased in July though much of the fall can be attributed to volatile categories that are not the best indication of underlying price pressures.
Over in the US, inflation reduced a touch from 3.0% to 2.9%, the lowest since March 2021. PCE price index (the federal reserve’s preferred measure of inflation) increased 0.2% in July. Monthly core inflation remained steady but the key drivers are different, contribution from accommodation and food prices more than doubled (mostly due to increased hotel prices). Given this, monthly inflation numbers still show momentum towards the Fed’s 2% target.
In Europe and as the inflation squeeze eases, headline inflation decreased to 2.2% in August from 2.6% in July – the lowest level in three years. Lower energy costs were partly responsible for the decline. Core inflation which excludes volatile food and energy costs ticked down to 2.8% from 2.9%. However services inflation (a data point closely watched by policymakers) increased to 4.2% from 4.0%.
Interest rates come down
August saw the Bank of England reducing rates by 0.25% to 5.00%, the first cut since the increases began back in late 2021 and a decision that was made by a slim majority by the Monetary Policy Committee. Although the BoE has signalled this is unlikely to mark the start of a rapid descent as it needs more evidence that the economy is disinflating.
The European central bank has chosen to hold rates steady at the last meeting in July. With the next meeting due in September, with inflation dropping to 2.2%, another 0.25% cut is expected at present.
Over in the US, the Federal Reserve is yet to cut interest rates however, given the surprising rise in unemployment, fading consumer confidence coupled with comments made by Jerome Powell’s in his Jackson Hole speech markets are preparing for more significant cuts than previously expected for September.
Equities continue to rally
August is usually a slow month for equities given the summer liquidity drought, despite this equity markets continued to rally with many developed markets trading near all-time highs.
The UK’s FTSE 100 finished higher by 0.83% at 8376. In the US, the S&P 500 has delivered strong gains increasing by 0.22% in sterling terms finishing at 5648, presenting the fourth month of straight gains for the index.
Over in Europe, the EuroStoxx 600 gained 1.60% in sterling terms.
Bond Yields
Bond yields have stayed broadly unchanged for the month with the 2-year and 10-year UK gilts finishing the month at 4.1%, up from 3.8% and 4.0% respectively.
August has generally been a positive month for bonds as the Bloomberg Global Aggregate (a global bond benchmark) increased by 2.37%.
Sterling continues to strengthen
Despite the volatile August for the Great British Pound, the currency continues to appreciate.
Versus the US Dollar, sterling traded as low as $1.27 before aggressively rebounding to $1.32, a value not seen in the last 18 months. Ultimately, the currency pair finished the month at $1.3127, or 2.66% higher for the month.
Versus the Euro, gains have been much more modest leading the currency pair to finish near yearly highs at €1.1882 or 1.23% higher for the month.
Off the beaten track
The sausage indicator
Economists look for sausage sales, as heightened appetites may signal that the US consumer is in trouble.
Sales of dinner sausages increased for one manufacturer which the meat producer suggested that stronger sales tend to indicate a weaker economy. Sausages are usually seen as a cheaper substitute for higher-priced protein products. The findings published last week align with reports from retailers in the US that consumers are increasingly bargain-hunting amid mild economic weakness.
Brazil bans Twitter (X)
Brazil’s Supreme Court has imposed a ban after Twitter (X) failed to appoint a new legal representative in the country by the given deadline. The dispute between Twitter and the Brazilian government has been escalating for months with the spreading of disinformation and extremist content being the root of the problem.
Despite Judge Moreas ordering the social media platform to suspend dozens of accounts as well as blocking accounts linked to former Brazilian President Bolsonaro, who has been accused of inciting violence in the country.
Whilst the ban has sparked a heated debate in Brazil with the main narrative being the violation of free speech, critics contend that Twitter (X) has been complicit in the spread of disinformation and extremism.
Bluesky, an alternative platform launched last year saw a surge of nearly 500,000 users in just two days. It’s a good time to be a VPN provider in Brazil.
Green Lego bricks are cancelled (for now)
The Danish toymaker announced last month that it has chosen to abandon plans to manufacture the bricks out of recycled bottles.
This was first announced two years ago with a one litre bottle giving birth to approximately 10 Lego bricks, however the shift towards recycled materials would demand some major carbon-intensive changes to the current brickmaking process which currently uses oil-based plastic.
Lego has been trying to engineer bricks from various eco-friendly materials for years, however success has been limited. Lego has mentioned that it won’t give up experimenting with different ingredients and materials and it still aims to make its bricks sustainable by 2032.
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