Introduction
Following the positive returns in the first half of August, global markets suffered a difficult second half of the month as they ended lower. Inflation data in the UK showed price rises exceeded 10%, whilst the economic outlook remained gloomy as fears mounted over the impact of rising interest rates on global growth. The end of August saw global markets suffer falls, particularly after Federal Reserve Chair Jerome Powell said the US economy would need tighter monetary policy “for some time” before inflation is under control.
Economic Update
British unemployment held steady at 3.8% in the three months to June, despite the concerns over the strength of the economy. The Office for National Statistics (ONS) said growth in regular pay excluding bonuses in the second quarter was 4.7% higher, ahead of the 4.3% in the previous three-month period, but when adjusted for inflation was 3% lower, a record fall. Employees’ average total pay, which includes bonuses, was 5.1% higher but this represented a 2.5% fall when adjusted for inflation. UK inflation, as measured by the Consumer Price Index (CPI), jumped from 9.4% in June to 10.1% in July, making the UK the first out of the Group of Seven countries (Canada, France, Germany, Italy, Japan, the UK and the US) to see price growth reach double-digits. The main increase in the jump in inflation from June to July was a 12.6% rise in annual food and non-alcoholic drink prices, the biggest since 2008, whilst higher energy and petrol prices were the biggest driver over the year as a whole. In more timely data on the UK economy, a closely watched survey showed that activity in Britain’s private sector barely expanded in August.
British government borrowing, which is the difference between spending and tax income, was higher than expected in July. The ONS said that public sector borrowing excluding state-owned banks was £4.944 billion in July, which was well ahead of the Office for Budget Responsibility’s March forecast of a deficit of just £0.2 billion, as well as economists’ forecast of borrowing of £2.8 billion. British retail sales were higher than expected in July, with growth being driven by online shopping deals. Retail sales volumes, adjusted for inflation and the time of the year, rose 0.3% in July, well above the forecasted 0.2% fall and the small decline in June. However, sales volumes in May and June were revised lower, meaning that volumes fell 1.2% over the three months to July. Research firm GfK said that their Consumer Confidence Index fell from -41 in July to a record low of -44 in August, below the forecasted smaller drop to -42.
US retail sales were unexpectedly unchanged in July, slightly beneath the forecasted 0.1% gain. Falling gasoline prices resulted in lower receipts at service stations, but this meant there was spare cash for spending on other goods. The European Union’s Statistics Office, Eurostat, said that growth in the Eurozone economy in the second quarter wasn’t quite as strong as previously estimated. Eurostat lowered its previous estimate of 0.7% quarter-on-quarter to 0.6%, whilst the year-on-year growth figure was reduced from 4% to 3.9%. Growth in the second quarter was broadly due to strong performances from Italy and Spain, whilst there was stagnation in the biggest economy, Germany.
Market Update
UK indices fell in the period 15 to 31 August, with the domestically-focused FTSE 250 suffering a bigger loss than the FTSE 100. Warnings of even higher inflation in the coming months increased fears over a deep recession in Britain and weighed on sentiment, with homebuilders, automakers and retailers suffering in particular. Other developed markets also finished lower, with US indices enduring sharp losses, partly due to persistent concerns over further aggressive interest rate rises from the Federal Reserve. European markets also suffered large declines on fears of a recession, and inflation reaching a new record high. The broad Asian and Global Emerging Markets were more resilient, but they still finished lower. Fixed income assets also endured losses, with gilts suffering from a heavy sell-off as the value of sterling declined and economic and political uncertainty weighed on sentiment.
We generally recommend that you hold investments for the medium to long-term, which we would view as being for five years or more. This market commentary provides an insight into the current factors that are affecting short-term global returns, but should not be viewed as a basis for making long-term investment decisions. You should consider your own investment goals and timeframes before making any such investment decisions. If you do have any concerns about where your money is invested, please contact your Origen adviser.
CA8485 Exp:09/2023
[ Date Posted: 05/09/2022 14:55:57 ]
