Market Pulse - August 2022

Key themes

  • Despite the July equity rally continuing through the first half of the month, equities and bonds fell in August.
  • The US Federal Reserve (Fed) suggested it will continue to aggressively raise interest rates until it is convinced inflation has been tamed and is moving back towards its 2% target.
  • In Europe, the ongoing surge in natural gas prices and new record highs in inflation led several European Central Bank (ECB) council members to suggest that further tightening of monetary policy is warranted; this caused German 10-year yields to register their largest monthly rise since 1990.
  • The euro weakened further and temporarily fell below parity against the US dollar.

Markets snapshot

  • The MSCI AC World equity index fell -2.9% (-2.3% in euros).
  • European equities underperformed and fell -4.7% (-5.1% in euros) as concerns increased over the economic outlook given the continued deterioration in economic data and the ongoing surge in gas prices.
  • The US also lagged, falling -3.9% (-2.6% in euros) on the back of more hawkish Fed commentary and increased expectations regarding the level of upcoming rate rises.
  • Emerging market (EM) equities outperformed, rising 1.2% (1.9% in euros) as the Chinese market was supported by increased stimulus from the authorities.
  • Japan also outperformed, rising 1.1% (-1.2% in euros), benefiting from the weaker yen and improving economic data as the economy reopened after recent Covid-19
  • The Eurozone >5-year bond index fell -7.0% as yields, which move inversely to price, rose with ECB commentary suggesting a faster and larger scale of rate rises was necessary to combat high inflation.
  • The euro fell -1.6% against the dollar to 1.0053 as risks to the Eurozone economy were heightened by a surge in gas prices and ongoing weakness in economic data.
  • Commodities fell -2.7% (-1.3% in euros).
  • Brent oil fell -12.3% on increasing concerns around the global growth backdrop.
  • European gas rose 21.4%, though it had been up as much as 76%.
  • Gold fell -2.8% due to the stronger US dollar and higher US real yields.

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