Oct 11

International Markets Review

International markets were softer in August, traditionally a weaker month for markets, with persistent concerns about the global economy, especially China, and rates being kept higher for longer by the US Federal Reserve continue to weigh.

US markets trended lower, with the S&P weaker by 2.4%, the Dow Jones by 1.8% and the NASDAQ by 2.2%. On the US economic front, inflation data for July, as measured by CPI, increased by 3.2% YoY after slowing by 3.0% YoY in June, while core CPI, which excludes the food and energy components, rose 4.7% YoY for July, versus the June print of 4.8% YoY.

July retail sales advanced by a better than expected 0.7% MoM, with the June retail sales number being revised upwards to 0.3% MoM. The Fed’s preferred inflation gauge, personal consumption expenditure (PCE) rose 4.2% YoY and 0.2% MoM, in line with expectations. As indicated above, the Fed is keeping rates higher for longer and indicating that it sees upside risks to inflation which could propel further rate hikes. At the recent Jackson Hole symposium Federal Reserve Chairman, Jerome Powell, intimated that although trending lower from its peak, inflation remains unacceptably high, and that the Fed is ready to raise rates if needed. The Fed remains committed to its stance of tighter monetary policy until inflation moves sustainably lower toward the bank’s 2% target. Powell also indicated that the Fed faces a delicate balancing act to avoid entrenching higher inflation by insufficient rate hikes, yet excessive tightening could be harmful to the economy. Bear in mind that the full impact of the previous rate hikes is still to filter through to the real economy, based on the traditional lag in the transmission of monetary policy.

European markets followed their US counterparts weaker with inflation concerns continuing breaking two months of gains. Core inflation, which excludes food and energy prices, rose 3.1% in July, down from the previous print of 3.23% in June, but remains above the BoJ’s target of 2%, for the 16th month in a row. Business sentiment among major manufacturers improved from one point in the first quarter, to five points in the second quarter, as well as sentiment for the larger non-manufacturers improving from 22 points to 23 points. Additionally, the Takan survey also highlighted an increase in capital investment plans, further underlining the more positive economic prospects.