Developed markets were volatile in August driven by concerns on the continued tightness in the US monetary policy settings, recession fears and rising geopolitical risks. Nonetheless most major indices ended in the green thanks to the dovish speech by the US Fed Chair, Jerome Powell at Jackson Hole. Sentiment was also bolstered by the upward revision of the March job numbers and encouraging inflation data. The Fed’s pivot was further encouraged by a massive 30% reduction in the previously reported non-farm payroll numbers for the year ending in March, suggesting that the labour market was weaker than previously thought. As part of its preliminary annual benchmark revisions to the nonfarm payroll numbers, the Bureau of Labor Statistics said the actual job growth was nearly 818 000 fewer jobs than the initially reported 2.9 million from April 2023 through March of this year.
Against this, the MSCI World Index gained 2.51% with performance broadening across investment styles. While quality (3.74%) continued to lead; the outperformance seen in previous months narrowed as value, up 2.64% also did well, and growth returned 2.46%. In terms of sectors, healthcare up 5.39% and consumer staples (5.19%) outperformed, while energy down -1.4 underperformed. Regionally, European stocks led the gains with the MSCI Euro up 4.04%, despite political uncertainty in France. The U.S. gained 2.27%, while Japan lagged with a marginal 0.49% increase due to concerns over the unwinding of “carry trades” linked to the yen.
Global bonds had a good month, outperforming global equities as the dramatic global sell-off in risky assets and the increased expectations of rate cuts in September drove a compression in yields. The Bloomberg Global Bond Index ended the month 2.37% higher. The UK 10-year gilt yield declined to 4% on the back of a 25 basis points cut by the Bank of England with further cuts expected. The German 10-year bond yield fell to 2.29%, with steady market expectations of European Central Bank easing. The US 10-year Treasury yield dropped to 3.9% and the yield curve inversion between two- and 10-year notes narrowed, reflecting market expectations for an imminent Fed easing cycle.