Overall Market Summary:
August 2024 was marked by volatility across global markets, triggered primarily by central bank policy actions and mixed economic data. Global equities posted positive returns, rising 2.6% in USD terms, bolstered by expectations of future interest rate cuts, particularly in the U.S. However, commodities struggled, with oil prices retreating due to concerns about weaker global growth and reduced manufacturing momentum. Meanwhile, global bonds rallied on the back of lower yields, driven by weaker economic data and cooling inflation pressures.
United States:
The U.S. equity market performed well in August, with the S&P 500 gaining 2.4% despite some mid-month turbulence. Solid Q2 earnings, especially outside the technology sector, helped lift sentiment. Inflation dropped below 3%, fueling expectations of a Federal Reserve rate cut in September. The U.S. labor market remained resilient, though economic growth showed signs of slowing. Bond yields declined, supporting fixed income assets, which posted a 1.5% gain for the month.
Europe:
European markets saw moderate gains, with the Stoxx 600 index rising 2.8% in August. The region benefited from the tailwinds of the Paris Olympic Games and lower inflation rates, with the ECB expected to reduce borrowing costs soon. Economic activity remained subdued, however, with cyclical sectors underperforming. Inflation in the eurozone eased to 2.6%, providing some relief to policymakers.
United Kingdom:
The UK economy grew faster than expected, expanding by 0.9% year-on-year in Q2, supported by strong private sector activity and business optimism. The FTSE 100 gained 1.5% in August. The Bank of England cut rates by 0.25% in early August, but further cuts may be delayed as core inflation remained elevated at 3.3%.
Japan:
Japan experienced significant market turbulence, with the Nikkei 225 plunging 12% early in the month following the Bank of Japan's surprise rate hike to 0.25%. This triggered a global unwinding of yen carry trades. However, by the end of August, the market had recovered somewhat, gaining 1.4% for the month. Inflation continued to rise, and more rate hikes are expected.
Asia (excluding Japan):
Asia ex-Japan markets performed well, rising 2% in August. China remained a point of concern as the economy grappled with sluggish growth, falling property prices, and deflationary pressures. Chinese equities, particularly the Shanghai Composite, fell by 3%, while the Hang Seng index gained 4% as investors anticipated further stimulus measures.
Emerging Markets:
Emerging markets also posted positive returns, gaining 2.3%, supported by a weaker U.S. dollar and favorable conditions for emerging market debt. Strong performance in markets such as India, which continues to experience rapid economic growth, helped buoy returns.
Global Bonds:
Global bonds enjoyed a strong month, with the Bloomberg Global Aggregate Index rising 2.8%. This was driven by falling yields amid expectations of upcoming interest rate cuts by central banks. U.S. Treasuries outperformed, delivering returns of 1.3%, while European bonds followed suit, albeit to a lesser extent. High-yield bonds lagged, particularly in the U.S. and Europe(.
In summary, August 2024 was a volatile but generally positive month for global financial markets, as expectations of central bank rate cuts and cooling inflation helped lift sentiment despite pockets of weakness in commodities and certain regional economies.