Monthly Market News August 2023 – Market trends

Alexandre Gauthy - Economist

Investor optimism took a turn for the worse last month. Fears about China's economic growth and a few earnings releases weighed on investor sentiment.

Our expert, Alexandre Gauthy, analyzes market trends in August 2023.

Equity markets: a negative month for stocks

Last month, global equities lost 1.5% in euro terms. U.S. markets (-0.34%) outperformed other regions, with European and emerging equities falling by 2.7% and 4.9% respectively. The S&P 500 and Nasdaq suffered their first monthly declines since February. Regional banks, semiconductors, industrial metals, department stores, automotive companies, cruise lines, casinos and some pharmaceutical companies recorded the most severe declines. It was a mixed month for the ‘Magnificent Seven’, the large tech companies that generated nearly 75% of the S&P's first-half gains. Nvidia (+5.6%) stood out with the help of an encouraging new earnings report and forecasts that exceeded very high market expectations. Amazon's share price (+3.2%) also rose after the publication of its results, thanks to the better-than-expected performance of AWS, while Alphabet (+2.6%) also benefited from the support of the artificial intelligence theme. By contrast, Meta (-7.1%), Apple (-4.4%), Tesla (-3.5%) and Microsoft (-2.4%) underperformed the index.

Concerns about China's economic growth played a role in the August equity pullback. July data on activity, credit and inflation were all weaker than expected. The structural pressures on China's real estate sector continued to receive particular attention, as did the fragility of consumer confidence. In addition, the measures taken by the authorities to revitalize growth continued to be largely disappointing, and President Xi specifically opposed calls for more direct stimulation of consumption. Some earnings releases weighed on investor sentiment. Apple missed its iPhone sales target in the first quarter and failed to meet its sales forecasts for the second quarter. Department stores reported renewed consumer interest in private labels (at the expense of more premium brands), which had a negative impact on the profits of major US retailers. August saw several other negative developments for equities. These included bank credit rating downgrades, a further tightening of bank lending conditions, a slowdown in loan demand, the highest mortgage rates since 2001 and rising gasoline prices.

Equity markets	August	3 months	Since 31/12	12 months
MSCI EMU NR	-3.1%	2.5%	13.9%	20.3%
MSCI EUROPE NR	-2.4%	1.9%	10.6%	13.5%
MSCI USA NR	-0.2%	6.4%	16.8%	6.7%
MSCI JAPAN NR	-0.9%	2.8%	11.7%	6.8%
MSCI EM. MARKETS NR	-4.7%	1.6%	2.8%	-6.2%
MSCI AC WORLD NR	-1.3%	4.7%	12.9%	5.6%
(Performances in EUR dd. 31/08/2023)				(bron: Bloomberg)

Bond markets: long term interest rates fall at the end of the month

US 10-year government bond prices fell in August. Long-dated bond yields ended the month below their intra-month highs. US two-year yields remained close to 4.85%, while ten-year yields ended the month at 4.10%, after reaching 4.34% at one point, the highest level since 2007. In the eurozone, German 10-year yields also ended the month slightly higher.

Government Bond Yield 10 yr	Current	August	3 months	Since 31/12
Belgium	3.09	-0.05	0.12	-0.14
France	2.98	-0.04	0.13	-0.13
Germany	2.47	-0.03	0.18	-0.11
Italy	4.12	0.02	0.04	-0.60
Greece	3.78	0.02	0.00	-0.85
Spain	3.48	-0.03	0.15	-0.18
United States	4.11	0.15	0.47	0.23
Japan	0.65	0.04	0.22	0.23
Evolution until 31/08/2023				Source : Bloomberg

Central banks: little news

It was a quiet month after the Fed and ECB announcements in July. In fact, there was no meeting scheduled for these two central banks in August. The news of the month was the surprise decision by China's central bank to lower its key interest rates. Weak economic data in China prompted the central bank to ease its monetary policy. The bank cut its 1-year lending rate by 15 basis points and lowered short-term interest rates by 10 basis points across a range of maturities. This marks the second rate cut in three months, at a time when policymakers are increasingly concerned about the health of the economy.

Central Bank Rates	Current	Latest adjustment	Date
Fed funds	5.25-5.5%	+0.25%	July 2023
ECB deposit rate	3.75%	+0.25%	July 2023
Situation on 31/08/2023			Source : Bloomberg

Currencies: appreciation of the US dollar

The dollar index gained 1.7% over the month, recovering the losses incurred over the previous two months. The dollar's rise against the euro (+1.4%) was mainly due to the US economy outperforming the eurozone. There was little movement in other currencies during the month. However, it is worth noting the sudden rate hike (+3.5%) by the Russian Central Bank in mid-August, aimed at curbing the ruble's depreciation. This intervention had only a temporary positive effect on the currency.

Currencies	Current	August	3 months	Since 31/12
USD	1.084	1.5%	-1.9%	-1.3%
GBP	0.856	0.0%	0.3%	3.3%
JPY	157.71	-0.8%	-6.1%	-12.3%
CHF	0.957	0.0%	1.6%	3.3%
Evolution versus EUR until 31/08/2023				Source : Bloomberg

Commodities: rising oil prices and falling industrial metals

The price of gold (measured in dollars) fell by over 2% in August. WTI crude oil gained 2.2%, closing a third consecutive monthly gain. Oil prices remained supported by production cuts in Saudi Arabia and Russia. Finally, industrial metal prices fell by 5% in August, mainly due to fears about the Chinese economy.