Nowhere to hide
The month of August was a tale of two halves, as easing price pressures provided support to equities in the first two weeks, but the market lost steam mid-month as hawkish central bank messages caused fears of a recession to reemerge. With tighter financial conditions and rising odds of recession, all major asset classes including equities, bonds, commodities, and high yield credit slid into negative returns, leaving investors with no place to hide. The U.S. dollar was the only haven as it strengthened against most currencies.
The NEI perspective
Major asset classes declined further. Markets retreated in August as central banks delivered a blunt message that they are willing to risk economic growth to tackle inflation. Global equity and bond markets pulled back from the July rebound and repriced lower as it became evident that there could be some “pain for businesses and households” in the near term.
Headline inflation may have peaked, but core inflation remains elevated. Headline inflation may have peaked in the U.S. as commodity prices continue to roll over and supply chains improve. However, core inflation remains unacceptably high across most regions due to wage gains and housing, for central banks to consider pausing rate hikes.
Rising risk of a sharp downturn in China threatens global economic growth China has been plagued by headwinds which have hampered economic growth: from a property sector slump and global consumption rotating from goods to services, to numerous Covid lockdowns. China has cut lending interest rates and recently launched a broad stimulus plan in hopes of stimulating credit demand and economic growth. From NEI’s Monthly Market Monitor for August. Read the full report for more insights.