The summer period just past was characterised by volatility on the financial markets. After a positive June, a change of direction was noticed. After months of almost exclusively positive movements, the market entered a correction phase in August, except for recovering some of the losses in the last few days. Over the month, global equities lost -2.5% (MSCI World), and so did bond futures (the Bund lost half a point, while the US ten-year bond lost about 1.5 points).
Several factors contributed to this deterioration including the realization that the monetary policies implemented by the major central banks of developed countries could remain restrictive for longer than expected. The weakness of the Chinese economy as it struggles to solve its post-pandemic problems. The labour market remains generally robust, but recent vacancy data have shown a contraction compared to expectations and previous data.
The major stock markets closed August on the downside after five months of upward growth, but with a recovery in the second half of the month that significantly limited losses. In the US, the SP500 closed the month with a loss of -1.50%, recovering from a -4.50% recorded in the middle of the month. The same trend was seen in the technology sector with Nasdaq, which initially fell by around -7% before recovering and limiting the damage to -1.70%. The same trend was also seen on the Swiss market with the SMI registering a -1.60% for the month, after having dropped -4%. Worse was the Euro Stoxx index, which posted -2.50% for August. Weak performance for Asian stock exchanges where the difficult economic situation in China continues to weigh on them with the Nikkei losing 2.50%, Hang Seng -8% and the Shanghai CSI 300 exchange down 5.80%. The various measures presented by the Chinese authorities to revive the stock market have been of little use at the moment.
In the short term, market optimism seen during the first half of the year declined and overall market outlook remains challenging. Although fears of a recession in the major developed markets have dissipated, the disinflation process is still ongoing with benchmark rates at their peak. It will be the macroeconomic dynamics and the subsequent decisions of the major Central Banks that will drive the trend of the financial markets between now and the end of the year.