Investment Commentary - August 2024

In the end, August resulted in positive returns for most risk assets. However, in no way did this reveal the true story of what was an extremely volatile month. Early August was tumultuous, triggered by a weak US jobs report, leading to fears of an economic slowdown in the US. This led to US dollar depreciation as investors priced in further rate cuts for the remainder of the year. The subsequent narrowing of interest rate expectations between the US and an increasingly hawkish Bank of Japan, resulted in a significant unwind of Yen carry trades (borrowing in Yen to invest in higher-yielding currencies). Knock-on effects from this were evident in other markets, such as a whopping single-day fall of -12% for Japan’s TOPIX index. This spread to other markets, with volatility spiking to levels last seen since the early days of the Covid-19 market turmoil. However, as the month progressed, equity markets bounced back, buoyed by more robust US data, a dovish sounding Federal Reserve and a degree of capitulation from the Bank of Japan, which toned down its previously hawkish rhetoric.

Once calm had returned to the markets, most equity markets posted reasonable gains for the period. This included the S&P 500 (+2.4%), Stoxx 600 (+1.6%), MSCI Emerging Markets (+1.6%)  and the FTSE 100 (+0.8%). Despite the Magnificent 7 stocks falling -0.4% during the month, the Nasdaq also managed a positive gain of +0.7%. In Japan, the TOPIX index did manage to claw back most of its early-August slump but finished the month with a return of -2.9%. In terms of style, global value (+2.9%) slightly outperformed global growth (+2.5%). Developed markets outperformed emerging markets and large cap companies outperformed small cap companies.

Shifting interest rate expectations and a general flight to safety saw bonds post modest gains during the period. US Treasuries were the top performer, with a return of +1.3%. Eurozone sovereigns and Gilts were also in positive territory, returning +0.4%. Emerging market bonds performed strongly, returning +2.6%. It was a similar story within credit markets, with the US leading the way. High yield bonds outperformed investment grade.

For currencies, it was a period of US Dollar weakness, with the currency down -2.3% versus the basket. The Japanese Yen was stronger against the other major currencies. Sterling was largely unchanged versus the Euro.

Commodities were another asset class that, on the face of it, enjoyed an uneventful month, with the main CRB Index returning +0.2%. However, there was some underlying volatility, with oil once again coming under pressure (-5.6% for WTI and -2.4%) and precious metals continuing to gain (gold returned +2.3% to breach the $2,500 level). Industrial metals failed to end their losing run, with copper down for the third consecutive month (-0.8%).

All figures quoted are local currency returns (and USD returns for commodities)