If we looked at this month's news from an objective standpoint, we'd except it to have been a rather bad one for the global economy. After all, this was a month where coronavirus continued its march around the world with US cases reaching a morbid 6 million. Japan, the world's third largest economy, recorded its biggest economic slump on record and US job growth stalled.
However, the stock markets told a different story. As the FT headline on 1 September put it, Global stocks soar during hottest August for decades in markets. Propelled by the expectation of further stimulus measures and a vaccine for the virus, most global markets saw a strong month.
UK
The UK formally entered recession during August for the first time since the 2008 financial crisis as figures revealed that the economy had shrunk by 20.4% in the second quarter of the year. The Bank of England’s latest estimates predict the economy to shrink by 9.5% this year. While a 9.5% shrinkage is far from alluring, it’s a lot better than the 14% decline they originally forecasted.
Rishi Sunak’s ‘stamp duty holiday’ has undoubtedly provided a boost to the housing market, with prices rising for the first time since March. The Purchasing Managers’ index also rose, recording its highest score in nearly seven years as it reached 60.3 in August, up from the 57.0 recorded in July.
On a more negative note, UK Government debt passed £2tn in August, the highest debt to GDP percentage since March 1961 and Rolls Royce reported a £5.4bn loss for the first 6 months of the year as global air travel stalled.
The FTSE-100 had a rather reserved month compared to the other markets we report on, rising just 1% to 5,964. The pound was up by 2% against the dollar, ending the month trading at $1.3373.
Europe
It was a quiet month on the continent as Europe’s leaders took their summer breaks. In the absence of major political news, perhaps it’s best to look at the numbers for Germany’s economy as these give some idea of the health of the general European recovery.
In the second quarter, German GDP shrank at a record rate – 10.1% – between April and June. However, the country is still producing a healthy balance sheet – €16.1bn in June – and unemployment is still relatively low at 6.4%.
On the Brexit front, talks between the EU and Britain stalled over rules governing state aid. It was a familiar story – each side blamed the other and then threatened to walk away from the table…
The economic news from Southern Europe made for depressing reading as this already economically vulnerable region suffered from the adverse impact of Covid-19 on tourism and the after effects of tough lockdowns. Between April and June, employment in Spain decreased by 7.5% according to Eurostat, the statistical office of the European Union.
It was a good month for the German stock market. The DAX index was up 5% in the month to close at 12,945. The French market did slightly worse, rising 3% to 4,947.
US
Across the Atlantic, it was a typically chaotic month. After formally accepting the Republican nomination, Donald Trump spent much of the month threatening to crack down on Chinese technology companies, using an executive order to target TikTok and WeChat and continuing his efforts to restrict Huawei’s operations.
Job growth slowed during July as the virus continued to sweep across the States. Employers added 1.8m jobs in the month, paling in comparison to the 4.8m they added in June.
There are signs that the Fed’s stimulus packages will continue for some time and – in a major policy shift – it now looks as if they will be prepared to tolerate higher inflation as the price of keeping interest rates low.
There was certainly a lot of confidence in the private sector. Apple became the first company to be valued at $2tn, just two years after it hit its $1tn market capitalisation in 2018.
Predictably, the US stock exchanges performed strongly. The Dow Jones index rose 8% in the month to close at 28,430, while the more broadly based S&P 500 index was up 7% to 3,500.
Far East
All the major stock markets in the Far East made gains despite what was a fairly inauspicious month as far as news stories were concerned.
In mid-August, following what has been a turbulent few months for the island, Hong Kong cut its economic forecast for the year. It now expects a contraction of 6-8% compared to the previous forecast of 4-7%.
There was more bad news in Japan. Prime Minister Shinzo Abe – the architect of ‘Abenomics’ – resigned on ill health grounds while Japan’s economy, already struggling before the pandemic, shrank by 7.8% between April and June.
Across the East China Sea, Chinese fintech company Ant – affiliated with retail giant Alibaba – unveiled plans for a stock market debut that may raise a record $30bn (£22.4bn).
As we previously said, August was a good month for the region’s stock markets. The Japanese Nikkei index rose 7% to 23,140, while China’s Shanghai Composite index and the South Korean market both made gains of 3%, to 3,396 and 2,326 respectively. Hong Kong’s Hang Seng index rose by 2% to close August at 25,177.
Emerging Markets
It was a quiet month for all three of the emerging markets that we cover. Two of the stock markets made gains, with India leading the way. The SENSEX index rose 3% to close the month at 38,628. The Russian market was also up, gaining 2% in August to end at 2,966.
However it was a different story in Brazil, where the market fell 3% to finish the month at 99,369.
Whatever you’re doing in September, we hope that you have a pleasant month as the seasons change. If you have any questions about your portfolio in light of recent market news, please get in touch. We’d be delighted to help.
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