GGlobal stock markets rose last week, which helped them to record gains of c0.5% for the month of August. This is quite an impressive result given that August started off with a bang: Japanese stocks suffered their biggest 3 day fall since records began and the VIX index (commonly referred to as the “fear gauge”) recorded its biggest ever intraday jump! The recovery over the month was driven by data that showed a still expanding US economy, robust corporate profits, and Central Banks (notably the US Federal Reserve) that are ready to ease interest rates. The calendar is quiet this week, with attention focused on the US jobs numbers which are due out on Friday. A poor reading in early August was one of the triggers for the market sell-off, hence we expect Friday’s number to be a closely watched print.
Last week
- Global stock markets rose to help push returns for August into modest positive territory.
- Nvidia published its much-awaited earnings numbers. The company exceeded consensus estimates on Q2 sales, earnings, and 3rd quarter guidance, but it did so by a smaller margin than it had in prior quarters: the stock fell on the back of this (although is still up c135% for the year in GBP terms!)
- The Pound fell vs the US Dollar but still finished the month up over 2% vs the USD.
- Government bonds sold off as economic data in both the UK and US was strong over the week.
This week
- Friday’s US jobs numbers (payrolls) will be the key watchpoint this week. Expectations are for around 165,000 jobs to have been created in the month of August and for the unemployment rate to dip down to 4.2% (from 4.3%).
- UK business survey data (PMI) is released this week on Tuesday and Thursday: expectations are that these figures will remain strongly in “expansionary” territory.
Equity returns are in GBP, Oil is in USD. Gold is shown in GBP. Bond returns are all shown in GBP. Source Bloomberg.
More detail:
- Global stocks rose by 0.9% last week to take returns for the month of August to 0.5%. This is quite some result given that August began with the Japanese stock market witnessing its biggest 3 day fall since records began and the VIX index (often referred to as the “fear gauge”) having its biggest ever intraday jump!
- Equity market returns for UK investors would have been even better in August had it not been for the strength of the Pound vs the US Dollar. The Pound rose by 2.1% vs the Dollar over the month, which meant that overseas equity returns (of which the US market comprises roughly a 70% weighting of the global stock market) were crimped when translated back into GBP. Whilst the continued trend of better UK data (notably UK inflation came in lower-than-expected last month and growth was strong) helped boost Sterling, it was more a case of Dollar weakness which drove the differential. The Dollar weakened as a greater number of interest rate cuts became priced into US bond markets, with 4 interest rate cuts (totaling 1%) now being priced in before the end of this year. The idea of US interest rate cuts was further reinforced by Fed Chair Jerome Powell in his speech at Jackson Hole on 23rd August, when he said that the “time has come” for the Fed to adjust its interest rate policy.
- The key event of last week was undoubtedly Nvidia releasing their second quarter earnings results. The reported numbers were very strong indeed (with Nvidia beating expectations for both earnings and revenue), but the stock dropped by 6.4% on the day post the earnings’ release and fell by 7.2% on the week. This weighed on the technology sector (which fell by 0.7% last week) and the US equity market as a whole, since Nvidia carries a c6% weighting within the index. For context, it is worth noting that Nvidia is still up by c135% for the year-to-date and the muted stock return last week is (in our view) attributable to a very high bar of expectations. Whilst Nvidia’s results were excellent (they posted Q2 revenue of $30.05Bn and Q2 profit of $16.6bn), they were not quite as magnificent as they’d been historically. Indeed, although revenue and profit numbers were higher than ever, expectations were already set very high and whilst Nvidia still beat those expectations it did it by a lower magnitude than it had done in the previous 6 quarters. Furthermore, Nvidia’s revenue guidance for the current quarter was a touch lower than some of the more bullish analysts had been expecting and this weighed on the stock. Nevertheless, profits were still up a whopping 152% from a year ago and this helped round off a very strong US earnings season.
- The US Q2 corporate reporting season is nearly complete, and the blended year-over-year earnings growth rate is 10.9%. This is on course to mark the highest earnings growth rate since Q2 2021 and also marks the 4th consecutive quarter of positive earnings growth from US companies.
- UK stocks were also up modestly last week (rising by about 0.5%), which helped take them to a 0.4% rise for the month of August. Healthcare heavyweight Astrazeneca (which carries a 7.5% weighting in the FTSE All Share) drove gains, as it rose by c7.3% on the month. UK companies have generally posted good corporate results in this current earnings season, with their highest level of earnings surprise since Q1 2023 and their best level of earnings growth in over a year.
- Government bond markets sold off a touch last week, with UK gilts falling by 0.5%. Bond yields rose (which means prices fell) as generally better economic data came through. In the UK we saw an uptick in mortgage approvals (the biggest monthly uptick since September 2022) and a monthly slowdown in consumer credit (reaching its slowest level since August last year). This is further evidence that the UK consumer is in decent health and feeling more positive and hence the bond markets reduced their pricing of interest rate cuts, with just 1 further cut being priced for this year (November) and 3 being priced for next year.
- US economic data was also strong last week. Second quarter growth data got revised up to 3%, with US personal consumption being revised up to 2.9% from 2.3%. This is an important data point as it shows that (in aggregate), the US consumer is in decent health and this is the bit that matters for US growth, since the US consumer accounts for circa 2/3rds of US GDP. Core PCE (the US Fed’s preferred inflation gauge) also came in a hair lower than expected last week, coming in at 2.6% YoY as opposed to the 2.7% level which had been expected by economists surveyed by Bloomberg.
The value of investments and the income from them can go down as well as up and you could get back less than you invested. Past performance is not a reliable indicator of future performance.
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