Overview
Overall, August 2024 was a month of moderate gains and heightened volatility across most financial markets. Equities, particularly in the U.S. and Europe, performed well, while Asian equities, especially China, declined. Similarly, bonds also gained traction as yields fall after deteriorating macroeconomic data. Commodities like gold saw significant price increases as US dollar weakened against most major currencies. Emerging markets are generally considered riskier at the time of economic crisis; therefore, they tumbled after a significant rise in volatility. Investors are closely watching central bank policies, economic data, and geopolitical developments as key drivers for the upcoming months. Federal Reserve Chairman Jerome Powell gave clear signals that the central bank will cut its interest rate in the September meeting during his speech at the Jackson Hole Economic Symposium. The Chairman noted that the US labour market is cooling quickly following the softer jobs report from July and the downward revision to payrolls.
Looking at the performance of major asset classes, August saw equities experiencing moderate gains. The world’s most followed equity benchmark, the S&P 500 index, increased by about 2.28%, driven by strong earnings reports from technology giants like Apple and Microsoft, whereas DJ Islamic market index, the benchmark for shariah-compliant investments, surged 3.42%. For European equity markets, Euronext 100 increased by 2.38% as price pressure alleviates while UK FTSE 100 index gained 1.82% amid optimism over newly elected Labour government’s policies. After experiencing a significant volatility in the previous month amid currency appreciation against US dollar, Japan’s Nikkei 225 index showed some strength with 1.37% rise. China’s Shanghai index took the opposite route and fell 3.08% as the economy is still in the progress to show much needed strength to bring investors in the risk assets’ market. Commodity markets also showed mixed performance with gold rising 2.34% amidst geopolitical situation, central bank buying, and expectations of cut in interest rate. On the other hand, DJ Commodity Index decreased by 0.37% in August. Lastly, DJ Sukuk Index surged 2% amid falling yield curve with the hope of rate cut in September while UK pound appreciated by 3.13% against US dollar amidst market sentiment towards improved UK economic outlook.
Market Snapshot
News & Key Events in August
UK
• The annual inflation rate in the UK edged up to 2.2% in July 2024 from 2% in June, but below forecasts of 2.3%.
• The Bank of England lowered its Bank Rate by 25bps to 5% in its August meeting, aligning with expectations of a small majority of the market, but noted that it will move cautiously in loosening monetary policy further until officials are more certain that inflation will remain subdued.
• The British economy expanded 0.6% qoq in Q2 2024, following a 0.7% rise in Q1 and in line with forecasts, preliminary estimates showed.
• UK economy has seen slow income growth, rising poverty, and growing inequality according to the Institute for Fiscal Studies. The UK economy is facing significant challenges, as highlighted by a recent report from the Institute for Fiscal Studies (IFS). The report covers the period from 2019-20 to 2022-23, indicating that the past few years have been characterized by very slow income growth, increasing poverty among low-income groups, and rising inequality.
US
• The annual inflation rate in the US slowed for a fourth consecutive month to 2.9% in July 2024, the lowest since March 2021, compared to 3% in June and below forecasts of 3%.
• Federal Reserve Chairman Jerome Powell gave clear signals that the central bank will cut its interest rate in the September meeting during his speech at the Jackson Hole Economic Symposium. The Chairman noted that the US labor market is cooling quickly following the softer jobs report from July and the downward revision to payrolls this week.
• Real gross domestic product (GDP) in the US grew at an annual rate of 3.0% in the second quarter of 2024, up from 2.8% in the initial estimate and 1.4% in the first quarter.
• The unemployment rate in the United States rose to 4.3% in July of 2024 from 4.1% in the previous month, the highest since October of 2021, and above market expectations that it would remain at 4.1%.
Europe
• The annual inflation rate in the Eurozone fell to 2.2% in August of 2024 from 2.6% in the earlier month, consistent with market expectations to mark the softest increase in consumer prices since July of 2021, according to a flash estimate.
• The Euro Area GDP expanded 0.3% on quarter in Q2 2024, the same as in the previous period and in line with the preliminary estimate.
• Unemployment Rate in the Euro Area decreased to 6.40 percent in July from 6.50 percent in June of 2024.
• The HCOB Eurozone Services PMI rose to 53.3 in August of 2024 from 51.9 in the prior month, firmly above market expectations of 51.9 to mark the strongest pace of expansion in the bloc’s services activity since April, largely driven by the temporary Olympic games boost in France.
• Germany’s far right, anti-immigration Alternative for Germany (AfD) has got a “historic success” in the German elections, with a big victory for the far-right party in the eastern state of Thuringia.
China
• China’s annual inflation rate climbed to 0.5% in July 2024 from 0.2% in June, exceeding market forecasts of 0.3% and pointing to the highest figure since February.
• The People’s Bank of China left key lending rates unchanged at the August fixing, matching market forecasts. The one-year loan prime rate (LPR), the benchmark for most corporate and household loans, was maintained at 3.45%. Meanwhile, the five-year rate, a reference for property mortgages, was retained at 3.85%.
• The Caixin China General Manufacturing PMI rose to 50.4 in August 2024 from 49.8 in July, above market forecasts of 50.0 as new orders returned to growth, driving faster production expansion amid better underlying demand conditions.
• On the electric vehicles front, sales of new energy vehicles (NEVs) exceeded sales of traditional cars for the first time due to strong policy support. Resultantly, NEV sales accounted for 51.1% of total car sales in China.
Others
• The annual inflation rate in Japan was at 2.8% in July 2024, holding steady for the third straight month while remaining at its highest level since February.
• Japan’s GDP expanded 0.8% qoq in Q2 of 2024, above market forecasts of 0.5% and a reversal from a 0.6% fall in Q1, preliminary data showed.
• The annual inflation rate in Russia rose to 9.1% in July of 2024 from 8.6% in the earlier month, the highest since February 2023, when base effects from Western sanctions softened the soaring levels of price growth in the Russian economy.
• The annual inflation rate in Canada fell to 2.5% in July of 2024 from 2.7% in the previous month, matching market expectations, to mark the softest increase in consumer prices since March of 2021.
• Ukrainian forces launched a “massive attack” on Russian territory, attempting to break through the Russian defences on the borders of the Kursk region, which sits just north of Ukraine’s Sumy region.
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