Monthly Market Roundup cov. August 2022

European equities ended July in negative territory partly due to the Federal Reserve’s renewed commitment to interest rate increases.

Inflation hit a new record high of 9.1%, beating consensus. Wholesale energy and commodities, like wheat, were among the main drivers. Pressure is building on the European Central Bank to be more aggressive with interest rate hikes in September.

A new link in a gas pipeline from the Iberian peninsula to France could be ready within a year say Spain, after backing from Germany. This will help to alleviate Europe’s reliance on Russia for gas supply.

Similarly, UK markets also suffered in August. Once again, fears over more aggressive interest rate hiking from central banks was a key driver.

The Bank of England raised its rates by a further 0.5% to 1.75%, which was the biggest increase in 27 years. Inflation hit 10.1% in July and is now forecast to hit 13.1% by the end of the year. Recession could follow.

As the cost-of-living crisis continues to worsen, UK consumer confidence fell to its lowest level in 50 years according to data from Growth for Knowledge (GfK).

After a promising start, US markets slipped to end August down. Contrary to some expectations, the Federal Reserve (Fed) doubled down on its commitment to curbing inflation through interest rate rises.

Though inflation seems to have passed it’s 9.1% June peak, Core inflation (minus food and energy) remains above target.

The US economy more than doubled its expected new job additions, which went some way to relieve recession fears. Job levels are now back to pre-covid markers.

The Federal Reserve’s renewed aggressive stance also negatively impacted Asian equities. Chinese markets were flat. Contrary to other central banks, the People’s Bank of China actually cut some of its interest rates to try to boost slow economic growth.

India was once again the standout performer beating the region and the rest of the world. The Reserve Bank of India raised rates by 0.5% which was higher than consensus estimates.

Japanese markets were bolstered by reports that the government will ease Covid restrictions and allow a cap of 20,000 tourists to arrive in the country a day.

Marginal gains in emerging markets were enough to ensure they once again outperformed the rest of the world. This time, EM Asia led the way with India at the fore. Thailand, Indonesia, and the Philippines all also strengthened.

EM Latin America traded sideways, but still outperformed the developed world. Brazil posted the biggest gains while Colombia and Mexico lagged.

In EM Europe, Middle East & Africa (EMEA), Turkey rallied strongly boosted by new government regulation on bank lending among other factors. Poland was the biggest detractor, hit by the gas crisis halting production in nitrogen fertiliser companies.

The threat of aggressive tightening of monetary policy (raising interest rates) by the central banks spooked bond markets in August.

The Federal Reserve’s renewed its stance on the matter in its annual Jackson Hole meeting as a way of curbing inflation. This meant a big sell off in government bonds with UK gilts hit the hardest.

Corporate debt markets also struggled. There were losses across the board for sterling, euro and US dollar denominated bonds.

Asia takes the focus for August’s ESG roundup. Here, there’s been significant movement in the development of ESG regulation.

There are now more than 200 relevant regulations in the region, increasing two-fold since 2016. The main trends have centred around corporate disclosures, greenwashing, climate risk and taxonomy.

China for example, published one of its first voluntary ESG disclosure guides with a range of suggested metrics with alignment to global standards. Developments like this should make the comparability of standards globally easier and help drive ESG investing in Asia.