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The Month In Markets – August 2023

The Month In Markets - August 2023

August was a tale of two halves, with the start of the month proving extremely challenging, before a mini rebound was staged towards the end of August. Most equity markets posted negative returns for the month, while bond markets were fairly flat over August.

As reported last month, China is the largest constituent of most emerging markets and Asian benchmarks. After a strong rally in July, Chinese equities suffered in August, falling over 7% in sterling terms. This had the effect of dragging down the emerging markets and Asian indices.

Concerns surrounding Chinese growth have been growing over recent months. It is not just lower- than-expected growth that is plaguing the country, but also concerns around their real estate sector. Chinese property developer Evergrande, which faced a liquidity crisis in 2021, filed for chapter 15 bankruptcy protection in New York during August. Another property developer behemoth, Country Garden, did not pay two dollar bond payments, calling into question the state of the company, its liquidity and its balance sheet position. While the market has been aware of potential issues in the Chinese property market, there was an expectation that the Chinese government would step in with meaningful support and reform. However, to date, policy response has largely disappointed, with the lowering of interest and mortgage rates not viewed as significant enough to help the troubled sector recover.

Elsewhere, the weakness in equity markets at the start of the month was not driven by concerns of faulting economic growth; on the contrary, the continued surprising strength of developed economies led to a re-pricing of interest rates and inflation expectations. The higher-for-longer mantra led to equities de-rating. The good news for the economy was bad news for equity (and bond) markets. We view the good news being interpreted badly by equity markets as a short-term trend; we believe that healthy consumers and businesses should support company earnings and growth over time.

Following strong US Q2 GDP data, released at the end of July, the Atlanta Federal Reserve’s GDP Now forecast model estimated Q3 GDP to be running at a 5.8% annualised pace, fueled by strong industrial production and housing sales. This much stronger data showed the strength of the US economy, even in the face of higher rates. The market digested the news by increasing long-term inflation expectations due to a stronger economy, which would lead to higher demand, and also lowered the number of rate cuts it expects in 2024. It was the longer-dated (more interest rate sensitive) parts of the bond market that were hit hardest, with the yield curve steepening. Although GDP data from the UK was not as strong, we did see month-on-month GDP increase by 0.5%. This had a similar effect on UK markets; long-run inflation expectations rose, the yield curve steepened and bonds, alongside equities sold off. UK wage data put further upward pressure on bond yields, with average earnings including bonuses coming in at 8.2%, much higher than consensus. However, there were some positives with such strong wage growth; consumers are now experiencing real wage growth, given inflation fell to 6.9% in July (data released in August). The same is true in the US where wage growth is now rising faster than inflation.

While economic data for the first 20 days of August was strong, there was a clear deterioration in data towards the end of the month. Services and manufacturing Purchasing Managers’ Index (PMI) across Europe, the UK and US all made for dismal reading, showing most areas to be in contraction and falling more than expected. Durable goods orders from the US along with consumer confidence was also disappointing. This led to a reversal in some of the optimism about economic growth and led to lower bond yields (higher prices) while equities rose on the back of lower yields and interest rate expectations. The market was further supported by commentary from US Fed Chair, Jerome Powell, who spoke at the annual Jackson Hole Symposium. He appeared to be fairly dovish in his message, lowering the likelihood of significant interest rate rises going forward.

Over recent months markets have yo-yo-d up and down with little direction or clear trend. There seems to be extreme short-term thinking with most market participants currently, with every key data point moving markets. While it can be frustrating, this short-term viewpoint of the market is likely to create excellent opportunities for investors who can take a longer-term time horizon, look through the noise and exploit the short-term volatility. We have been attempting to do just this in recent months, across both bond and equity markets. We continue to see highly attractive long-term value across both bonds and equities. We want portfolios that can take advantage of the opportunities, but carry sufficient diversification, acknowledging the uncertainty the economy faces as we head into 2024.

Andy Triggs

Head of Investments, Raymond James, Barbican

Risk warning: With investing, your capital is at risk. Opinions constitute our judgement as of this date and are subject to change without warning. Past performance is not a reliable indicator of future results. This article is intended for informational purposes only and no action should be taken or refrained from being taken as a consequence without consulting a suitably qualified and regulated person.

Appendix

5-year performance chart

The Week In Markets – 2nd September – 8th September 2023

The start to September in markets has not kept pace with the rising temperatures we have witnessed in the UK this week. Temperatures have hit above 30 degrees for four consecutive days,  setting a new record in the month of September, with the potential to make it five or six days if the weather keeps up this weekend. Fingers crossed!

As we head towards the next US policy meeting on the 20th of September, the US Fed and market participants alike will be picking apart the data points that are released in an effort to determine whether further rate hikes are warranted. Purchasing Managers Index (PMI) is a leading indicator of economic trends within sectors and have been the leading factor for market moves over the last two weeks. The US services sector for August has surprised to the upside, rising to 54.5, the highest reading since February and indicating an expansion in the services economy. The economy strengthening in theory is good news, it downplays the effect that the rate hikes have had on the economy and should support labour markets and consumers going forward.

Personal Consumption Expenditure (PCE) is not the most common index but is the US Fed’s preferred measure of inflation, as it calculates inflation but considers buying habits and saving levels. PCE for the month of July showed a rise to 3.3%, a jump up from 2.9% in the previous month and confirmed US consumer spending was still resilient with increasing spending in restaurants and concerts. Inflation remains greater than the strict 2% target the US Fed has set and investors will eagerly await the next meeting. 

US initial unemployment claims came in better than expected on Thursday, a further indication of strength in the labour market. While there are signs of pockets of weakness in US labour markets, the overall picture continues to be a positive one, which in theory should help support equity markets in the near term.

Strikes have been a common topic this year and the latest to shock markets is at Chevron’s Australian natural gas plant. Australia is the world’s largest liquified natural gas exporter, and the confirmation of worker strikes over wages and working conditions has led to a spike in European gas prices. The strikes have been designed to place significant pressure on Chevron and force them to cut a deal before production is substantially affected. A total shutdown of the facilities would be chaotic, immediately causing an energy crisis in Australia that would require the government to intervene. The same strike tactics were employed on domestic gas producer, Woodside energy, leading to a deal raising wages and making it harder for the firm to hire contractors, improving existing employees job security.

Shares in Apple tumbled almost 6.5% over the past two days, wiping $190bn from its market cap following the news of a China ban on iPhones. Employees at government owned firms have been told to stop using the iPhone with many companies offering subsidies to incentivise the switch to local brands. Huawei, China’s leading phone manufacturer, have also launched two new phones in the push against Apple with smartphone sales estimated to jump almost 70%. Given Apple is the largest constituent of the major US and global equity indices, weakness in the share price weighed heavily on markets.

Bank of England (BoE) Governor Andrew Bailey indicated this week that UK rates are likely to be “near the top of the cycle” as the BoE expects inflation to continue to drop towards the end of the year. The back-and-forth on interest rate expectations has led to volatility in the bond market; it was only a couple of months ago that certain commentators were predicting UK rates to peak at 7%, the peak rate is now expected to be below 6%. Bailey’s words led to a weakening in sterling versus the USD, falling below 1.25, a 3-month low.

Weakness in Apple this week reinforces our message of diversification and being aware that even seemingly great companies can face headwinds. Our equity exposure in portfolios remains diversified across sectors, styles and geographies. The fixed income component of portfolios is focused on high quality bonds which are now paying attractive nominal yields, which will form the bedrock of portfolios going forward.

Nathan Amaning, Investment Analyst

Risk warning: With investing, your capital is at risk. The value of investments and the income from them can go down as well as up and you may not recover the amount of your initial investment. Certain investments carry a higher degree of risk than others and are, therefore, unsuitable for some investors.

The Week In Markets – 26th August – 1st September 2023

Today we enter the month of September so it’s only right we start off with a fact of the month. The Romans often related different months with different Gods and September is connected with Vulcan, the God of Fire, due its fiery hot weather. It has also been reported that the UK will be hit by a mini heatwave, living up to the September myth.

Last week we reported that the annual Jackson Hole Symposium was taking place on the Friday, with key economic policymakers scheduled to make a speech. Arguably the most powerful man at the event, US Fed Chair Jerome Powell, looked to deliver a less hawkish message than the previous year, stating the Fed would be “moving with care” to evaluate data points. Progress towards the 2% inflation target has been significant as the US Fed brought inflation down to 3.3% from its peak, having raised rates by 5.25% since March 2022. Mr Powell ended his speech once again stating the importance of “holding policy at restrictive level” until inflation falls viably to target, however investors have begun to speculate whether we are already at the terminal interest rate. Markets rallied on the back of Powell’s speech with US equities advancing either side of the weekend and US government bond yields falling (prices rise).

 US GDP Growth for Q2 was released on Thursday, growing 2.1%, just below the 2.4% market expectation. The downgrade in US GDP growth will be a data point the US Fed consider before their next meeting in September and could strengthen the argument for a potential pause as the Fed will not want to further hamper the US economy. Investor views are heavily divided between a potential recession and the “soft landing” scenario that we describe as inflation falling close to target, with labour markets and economies remaining stable. There was further “bad news” from the US with the job openings data disappointing. Markets reacted to the weaker data this week positively, believing it pointed towards the US Fed no longer needing to raise rates. Equities carried on the momentum from Jackson Hole and advanced further.

US Non-Farm Payroll (NFP) was released this Friday afternoon with 187,000 jobs created, ahead of market expectations of a 170k increase, signalling the continued strength of the US labour market.

Euro zone inflation data was released on Thursday, defying expectations. The Inflation rate (year-on-year) was 5.3% for August, the same as the previous month but greater than the 5.1% markets expected. Inflation rates from Germany, Spain, Italy and France all came in higher than expected, which will be a cause for concern for the European Central Bank. Higher oil prices could also put upwards pressure on inflation later in the year. The oil price has continued to move higher this week.

Covering news in the UK, this week Nationwide reported house prices fell by -5.3% (year-on-year) in the month of August, the fastest annual drop over the last 14 years. Putting this into perspective, the average house price is more than £14,500 cheaper then reported a year ago. However, the steep rise we have seen in interest rates have made affordability difficult for buyers, with many having to wait until rates settle. House sales are 40% down from 2021 where we saw a housing sales boom after a period of low interest rates, the build-up of household savings due to covid lockdowns and the stamp duty holiday.  

The start of September also signals the transfer deadline for football fans. As an investment team we aim to avoid making last minute panic decisions in portfolios and prefer to have structure and a long-term process around our decision making.

Nathan Amaning, Investment Analyst

Risk warning: With investing, your capital is at risk. The value of investments and the income from them can go down as well as up and you may not recover the amount of your initial investment. Certain investments carry a higher degree of risk than others and are, therefore, unsuitable for some investors.

The centre holds

In this month’s Market Commentary, Raymond James’ European Strategist, Jeremy Batstone-Carr, discusses the global financial markets, takes a look at the UK and US economies, plus he examines recent challenges in China.

The Week In Markets – 19th August – 25th August 2023

The final full week of August has been a mixed bag, with markets oscillating on the back of various data releases.

In what was a data-light week, Purchasing Managers Index (PMI) data from the UK, Europe and US took centre stage on Wednesday. PMI data is essentially an index of the prevailing direction of economic trends in the manufacturing and services sectors. A reading above 50 typically indicates expansion, while below 50 signals a contraction. The data released on Wednesday for all the regions was universally weak, falling below consensus, and pointing to contraction in all but US services, which was marginally above 50. Despite weak data, both bond and equity markets rallied strongly on the day, as the market interpreted the data to mean that central banks may not need to increase rates much further, as there are signs the economies are slowing. The US S&P 500 index rose close to 1.65% on Wednesday, while 10-year UK gilt yields fell by over 15 bps, which is a very large one day move. 

On Wednesday evening the hotly anticipated Nvidia quarterly results were released. Similar to last quarter, the company released much better results than expected, and also gave very positive forward-looking commentary, with demand for the chips (often used in artificial intelligence) growing rapidly. This time however, the share price reaction on the day was fairly muted, while the broader technology sector fell on Thursday.

US initial jobless claims data was released on Thursday and once again sent mixed messages to markets, as the better-than-expected results pointed towards a resilient labour market.  

Positive news was released in the UK as OFGEM, the government’s regulator for electricity and gas, announced a new price cap with the typical household bill to fall below the £2000 mark for the first time in 18 months. Falling energy costs will filter into headline inflation over the coming months. Staying with the UK, consumer confidence unexpectedly improved this month and consumer inflation expectations continued to fall. Despite higher interest rates, it appears that consumers are feeling more positive on the outlook now that inflation appears to have peaked, energy prices are falling, and wage growth remains strong.  

Germany is Europe’s largest economy, and their Q2 GDP data was released this morning. The economy contracted by -0.2% (year-on-year), in line with market expectations and flatlined at 0% (quarter-on-quarter) which just edges Germany out of a technical recession (typically defined as two consecutive quarters of negative growth). Consumer spending increased by 0.1% in the second quarter, but it was poor trade data that heavily weighed on the country as exports fell -1.6% and imports fell -1.8% compared to the previous quarter.

Apart from the bank holiday, investors are looking forward to the commentary from this year’s Jackson Hole symposium. The Jackson Hole symposium is a three-day annual conference that takes place in the state of Wyoming and hosts central bank leaders from all around the world.  US Fed chair, Jerome Powell, and ECB President, Christine Lagarde, are set to speak at different times during the event. Last year, Mr Powell’s speech was well remembered as he stated the Fed’s determination to tackle inflation, before embarking on the steep interest rate path we’ve seen over the last year. This year investors are expecting a less hawkish tone, given inflation has fallen from over 8% this time last year in the US, to 3.4% currently.

Do enjoy the bank holiday.

Nathan Amaning, Investment Analyst

Risk warning: With investing, your capital is at risk. The value of investments and the income from them can go down as well as up and you may not recover the amount of your initial investment. Certain investments carry a higher degree of risk than others and are, therefore, unsuitable for some investors.

The Week In Markets – 12th August – 18th August 2023

It has been a tricky week in markets, with equities and bonds coming under pressure in developed markets, while data from China continues to indicate that the world’s second largest economy is weakening.

Last week’s confirmation of deflation in China was backed up this week by weaker than expected industrial production. There was also the surprise development that China will no longer be reporting on youth unemployment while they “optimise labour force survey statistics.” The last figure from June showed youth unemployment was 21.3%, and one questions whether China would have suspended youth unemployment data if the reading was a little more positive! In response to the continued weakening data there was surprise policy rate cuts for the second time in three months to try and stimulate the economy.

There was mixed data from the UK this week, with wage growth data coming in at the highest level since comparable records began in 2001. The figure of 8.2% (including bonuses) for the three months between April and June will make for uncomfortable reading for the Bank of England (BoE) and is likely to lead to further interest rate rises. Despite the acceleration in wage growth, unemployment nudged up to 4.2%. Wage data was followed by inflation data, with headline inflation continuing to fall, coming in at 6.8%. While it is pleasing that inflation continues to trend lower, core inflation (excludes food and energy) stayed at 6.9%, while services inflation increased to 7.4%. The impact of this was for bond markets to change expectations once again for peak UK interest rates, which have now moved out to 6%. 

On Wednesday we saw the yield on the US 10-year Treasury bond hit a 15-year high on the back of stronger than expected industrial production data and the release of the latest US Fed meeting minutes. The US economy continues to perform ahead of expectations which has led to a more consensual view that a US recession is less likely. This has led to inflation expectations over the longer-term increasing, pushing yields higher. UK government bonds also sold off this week, with the 10-year government bond yield breaching 4.7%, the highest level this year. Like the US, the UK economy is growing faster than economists had expected; the higher economic growth is expected to lead to more sticky inflation.

Much like 2022, higher bond yields have been a headwind for equities recently. The tech-heavy Nasdaq index, which had a very strong H1 2023, closed at a six-week low on Wednesday. There was some excitement in the IPO market, with Vietnamese electric car maker Vinfast listing this week. The share price more than doubled on open and at one point during its first trading day the share price had risen from $10 to $37! This valued the loss-making EV carmaker at more than Ford and BMW.

This was a tough week for most asset classes, continuing the weakness in August, after a strong July. The day-to-day noise can be uncomfortable and focusing on it too much can encourage short-term decision making, which we believe is often not in the best interest of returns. The bigger picture continues to point to economies proving resilient to higher interest rates, while inflation, in general has been trending lower from recent peaks over the last 12 months. This is accompanied by some of the highest yields available on bonds in 15 years and below average valuations for much of the equity market, all encouraging signs for future returns.

Andy Triggs, Head of Investments

Risk warning: With investing, your capital is at risk. The value of investments and the income from them can go down as well as up and you may not recover the amount of your initial investment. Certain investments carry a higher degree of risk than others and are, therefore, unsuitable for some investors.

The Week In Markets – 5th August to 11th August 2023

For the football lovers, the Premier league is back this evening. Even better news for Arsenal fans, as Tottenham striker Harry Kane, who consistently scores in the North London derby, has seemingly agreed a deal to join German champions, Bayern Munich. The urge to win trophies and compete in the Champions league was greater than staying to eventually make history and break Alan Shearer’s premier league top scorer record. Tough decision!

Moving on from the exciting transfers news, US inflation data was released on Thursday.  Headline inflation for the month of July came in at 3.2%, a rise from the previous month’s 3% figure. Core inflation (excludes energy and food prices) was 4.7%, slightly below expectations of 4.8%. Housing costs were once again the leading contributor, which was up 7.7% year on year.  Inflation within the US has been on a steady decline from its peak of 9.1% in June 2022, however investors believe the “sticky” part of inflation is now kicking in and we can expect the US Fed to carefully consider if any additional rate hikes are required. With oil prices rising over recent months, it is no surprise to see headline inflation nudge up and this is likely to continue next month.

Last week, Fitch, an American credit rating agency surprised markets by downgrading US credit to AA+. This week, Moody’s, another established credit rating agency downgraded credit ratings of many mid-cap and small-cap US banks, with concerns that the banking sector will be tested by potential liquidity and profitability risks. This came off the back of weaker second quarter results for some smaller US banks, as the elevated interest rates have led to tighter credit standards and therefore lower loan demand from businesses and consumers.

UK GDP was announced this Friday morning and came as a surprise, as for the month of June (year-on-year) GDP increased by 0.9%, beating expectations of 0.5%. In the three months leading up to June, the GDP rate was 0.2% and the office of National Statistics claimed the additional bank holiday in May was a major factor for increased output in June. Sterling erased recent losses to rebound against the USD to 1.27. However, it seems that good news can lead to bad news as the solidified strength in the UK economy may cause the Bank of England (BoE) to continue further with interest rate hikes. The potential for higher rates weighed on the UK large cap index, which has fallen around 1% today. 

China’s post pandemic recovery has stuttered since the start of the year and inflation data this week came in negative, at -0.3%. Producer price index (PPI) is a measure of costs for manufacturers and was -4.4%, better than the -5.4% expected. This now puts China’s economy into the state of deflation – a decline in the price levels of goods and services with global demand for Chinese goods faltering. China’s central bank have pushed back against calls for further policy changes after measures such as the easing of property curbs have been implemented.

Markets continue to be choppy in August, after a strong July. While we monitor and review markets on a daily basis, we prefer to focus on the long-term (multi-years) when it comes to strategic decision making. Referring back to the start of the premier league, consistency within a season is the ultimate key to success and we will all be hoping our beloved clubs can break the Manchester City era of dominance.

Nathan Amaning, Investment Analyst

Risk warning: With investing, your capital is at risk. The value of investments and the income from them can go down as well as up and you may not recover the amount of your initial investment. Certain investments carry a higher degree of risk than others and are, therefore, unsuitable for some investors.

The Month In Markets – July 2023

The Month In Markets - July 2023

After a shaky start, the month of July proved to be very strong for equity markets, with select fixed income markets also joining the party. This year’s equity laggards – emerging markets, Asia and UK – all saw a resurgence. 

When we consider emerging markets and Asian equity indices, it’s worth remembering that the biggest constituent of both indices is China. The Chinese market was up approximately 9% (sterling terms) in July and was a key driver of returns for the indices.

So, what propelled Chinese equities in July? Well, it seems the old mantle of ‘bad news is good news’ was in play. China’s economy is stalling, and the re-opening boom has been short-lived. The country is on the brink of experiencing outright deflation, while the weakness in the global economy is negatively impacting China’s export market, which has been the economic heartbeat over the last 20 years. While this may all sound like ‘bad news’, it does, in fact, increase the likelihood of intervention and policy support to try and stimulate the economy going forward – this is the ‘good news’. It is likely that Chinese equities advanced in anticipation of government intervention. By the end of the month, China’s top policymakers had addressed the situation and pledged to step in and support domestic demand with stimulus and policy measures, that were to be implemented in a “precise and forceful manner”.

Inflation data for China made interesting reading, coming in at 0.0%, flirting with deflation. More worryingly was a 5.4% drop in producer prices compared to 12 months earlier. Producer price index (PPI) data is a good leading indicator of future inflation, and this data print points towards China tipping into deflation in the coming months. This will have an impact on the global economy as well, with China now effectively exporting deflation to the rest of the world through falling prices for many of its exports. This should be a benefit to the Western world which is continuing to grapple with inflation in their economies.

Both UK equity and bond markets were boosted by headline inflation coming in below expectations at 7.9%, a 15-month low. The past year has been characterised by UK inflation continually being higher than anticipated so it made for a refreshing change to receive some positive inflation news. The impact of the data led to a shift in market expectations that UK interest rates would peak at 6.5%, to a new peak rate of 5.75%. Lower interest rates should in theory benefit consumers and corporates alike, through lower borrowing and financing costs. As such equities caught a bid, with the mid-cap index the winner on the day, rising over 3%.

UK assets have been unloved and under-owned pretty much since the Brexit vote. Selling pressure has intensified recently as the UK has grappled with political issues alongside stubbornly high inflation. The news that the country may finally be getting a grip on inflation could help improve sentiment and potentially reverse these outflows from UK assets, which would be extremely powerful for valuations. There is clearly a long way to go, but July has offered some green shoots of hope.

Equities, in general, were buoyed by the market’s increased belief of a soft-landing scenario playing out – inflation falling close to target, without labour markets and economies cracking. US economic data backed up this narrative – their headline inflation fell to 3% and the labour market continued to exhibit strength. There are still risks to this thesis, and the full impact of aggressive interest rate hikes is still yet to be seen. However, economic growth and employment continues to highlight resilience, particularly in the US, which is the world’s largest economy.

Our approach of country diversification and focus on fundamental analysis meant portfolios had exposure to the cheaper, unloved areas of the equity markets which performed well in July. Markets are complex systems and ever-changing, so it makes sense to have an adaptable approach that recognises the world can and will look different in the future.

Appendix

5-year performance chart

Risk warning: With investing, your capital is at risk. Opinions constitute our judgement as of this date and are subject to change without warning. Past performance is not a reliable indicator of future results. This article is intended for informational purposes only and no action should be taken or refrained from being taken as a consequence without consulting a suitably qualified and regulated person.

Andy Triggs

Head of Investments, Raymond James, Barbican

The Week In Markets – 29th July -4th August 2023

This week has ushered in a new month, and with it a change in market sentiment. After a very strong month of July, equity and bond markets have gotten off to a rocky start in August. It’s also been a tough week for UK Prime Minister Rishi Sunak, whose private home was draped in black fabric by Greenpeace protestors as they reacted to the news of Britain committing to hundreds of new North sea oil and gas licenses.

Staying with the UK, the Bank of England (BoE) met on Thursday and announced a further 25bps (0.25%) rise to interest rates. There was certainly more of a split decision with this vote as six of the nine members voted for the 25bps increase, two members voted for a stronger 50bps increase whereas Swati Dhingra, as usual, was the odd one out, voting for a pause in rates. UK rates are now at a 15-year high of 5.25% with extremely hawkish commentary coming from Governor Bailey. He held firm in a message that the UK population will not want to hear; the bank rate will remain “sufficiently restrictive” in order to reach the inflation target of 2%. The positive is that investors now believe the peak in interest rates will be 5.75%, a month earlier this expectation was at 6.5%. A further 0.25% rise is expected at the next meeting in September.

The housing market is interlinked with interest rates, and it was no surprise therefore to see UK house price data highlight falling property values. Nationwide, the UK leader in mortgage lending, reported average house prices was down 3.8% in July (year-on-year). Mortgage rates remain high which is impacting potential homebuyers. To put it into perspective, first time buyers on a 6% rate would see mortgage payments account for approximately 43% of disposable income.

Eurozone inflation for the month of July (year-on-year) fell to 5.3%, in line with expectations and below the previous month’s figure of 5.5%. Fabio Pancetta, a European Central Bank (ECB) member, spoke this week, making the case for a pause in interest rate hikes. The ECB is due to meet next month, and investors believe a pause in rates could be on the horizon as Pancetta argued sustaining rates at the current level would be enough to see inflation fall to the 2% target without “hurting the economy or jeopardising financial stability”.

The tough start to August was kicked off by the surprise downgrade of US debt by credit ratings agency Fitch. The downgrade from AAA to AA+ was driven by “a steady deterioration in standards of governance”. Investors have previously considered US government debt to be one of the best safe haven assets, so this downgrade could impact this, although we think this is unlikely. Further downside pressure was put on US bonds as it was announced the US was planning to ramp up issuance (increase supply) following the extension of the debt ceiling. There is a risk that funds will be pulled from equities to purchase the new issue of government bonds and as such we saw equity markets suffer.  The S&P 500 fell 1.4% on the day whilst the tech-heavy Nasdaq index fell 2% and this ripple effect crossed the waters as the FTSE 100 also closed down 1.38%. After a strong period in equities, it is natural to experience pullbacks and consolidation.

US Non-farm payrolls (NFP) were released this Friday afternoon with 187,000 jobs created, below market expectations of a 200k increase. The data release still signals a robust labour market however this is the second consecutive month that NFP has come in below expectations. The US Fed are likely to continue to measure the impact of the rate hikes on the economy, including the US inflation print next week. ahead of their September meeting. Until then, a pause or further increase in interest rates is anyone’s guess.

To round up the week, our key message is as important as ever. Maintaining a long-term investment mindset to markets best allows to take advantage of the short-term instability. We will continue to blend asset classes in portfolios and take advantage of new opportunities that arise.

Nathan Amaning, Investment Analyst

Risk warning: With investing, your capital is at risk. The value of investments and the income from them can go down as well as up and you may not recover the amount of your initial investment. Certain investments carry a higher degree of risk than others and are, therefore, unsuitable for some investors.

Great Expectations

July has proved a strong month for investors in the financial markets, particularly across the stock markets of Western developed economies. Returns were generated against a backdrop of economic resilience, especially in the United States where, despite the Federal Reserve having raised interest rates in excess of 5.00%-points in little over a year, growth has persisted and even exceeded expectations.

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