Written by Millan Chauhan

Last week, we saw some extended moves across global equities and the return of volatility to markets. Global equities, as measured by the MSCI All-Country World Index ended the week +0.4% in GBP terms. However, beneath the surface we saw several economic data releases which markets reacted to in very different ways.

Earlier in August, we saw US unemployment data come in higher than expected which raised a question as to the state of the US economy and whether interest rates have been too high for too long. Last week, markets reacted positively to the weekly jobless claims figure in the US, as they fell to 233,000, which was marginally below expectations. Following this announcement, US equities rallied on Thursday and the S&P 500 closed with its strongest daily gain since November 2022, finishing the week +0.3% higher in GBP terms.

Following the volatility resulting from the Bank of Japan’s decision to hike interest rates to 0.25% in July, the MSCI Japan index fell -12.5% last Monday in local currency terms. The Deputy Governor, Shinichi Uchida, calmed investors by confirming that the bank would not likely hike further while in periods of market instability. Markets reacted positively to this and the MSCI Japan index recovered +9.6% the following day in local currency terms. The MSCI Japan ended down -1.8% for the week in GBP terms.

This week, markets will turn their attention to UK and US inflation data that are set to be released on Wednesday. The UK inflation rate is expected to be at 2.3% for July’s year-over-year reading. The US inflation rate will also be released on Wednesday with expectations that the CPI rate will slow to 3.0% year-over-year. Over the last week, expectations of Federal Reserve interest rate cuts have also increased with the market now pricing in 1.0% of interest rate cuts before the end of the year.

In periods of market volatility and changing economic backdrops, it is important to have diversification in your portfolio across asset class, region and investment style.

 

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All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 12th August 2024. 

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