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Market Reviews - GBP (August 2020)

A roundup of factors affecting regional equity and bond markets over the month
September 2020
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Risk Disclaimer

Past performance is not a guide to future performance. The value of investments and income derived from them can go down as well as up as a result of market or currency movements and investors may not get back the original amount invested.

Views and opinions have been arrived at by BMO Global Asset Management and should not be considered to be a recommendation or solicitation to buy or sell any products that may be mentioned.

UK

The FTSE All-Share Index rose 2.4% in sterling terms during August. The UK economy contracted 20.4% in the second quarter, the worst result of any major European economy, underscoring the impact of the UK’s protracted Covid-19 lockdown. However, monthly survey data for August showed some improvement, with business activity gauges suggesting the economy was on course to register positive growth in the third quarter. Retail sales jumped 3.6% in July from the prior month, indicating some resurgence in consumer spending. Survey data nevertheless pointed to rising job losses in the retail industry. UK inflation increased to 1% in July from 0.6% in June. In terms of sectors, oil equipment, services & distribution (21.6%) and travel & leisure (16.7%) outperformed, while beverages (-8.0%) and gas, water & multiutilities (-6.2%) lagged.

Risk Disclaimer

The value of investments and any income from them can go down as well as up and investors may not get back the original amount invested.

 

FTSE All-Share Total Return (TR) GBP (%)*

FTSE All-Share Total Return (TR) GBP (%)

Views and opinions have been arrived at by BMO Global Asset Management and should not be considered to be a recommendation or solicitation to buy or sell any products that may be mentioned.

Europe

The FTSE World Europe ex-UK Index returned 2.2% in sterling terms in August. European economic data was generally consistent with the continuing recovery post-lockdown, following the substantial contraction of the second quarter. Survey data on business activity for August pointed to expansion in the eurozone manufacturing and services sectors, albeit at a slower pace than in July. Eurozone retail sales rose 5.7% in June versus the prior month, bouncing back to pre-crisis levels. German industrial production surged 8.9% in June. However, Europe experienced a rise in new daily Covid-19 infections over August, especially in France and Spain, raising concerns that this could derail recovery. Data showed the EU economy had shed 5.5 million jobs in the second quarter, while European Central Bank officials warned more jobs could be lost in the autumn.

FTSE International Limited (“FTSE”) © FTSE 2019. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under licence. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

FTSE World Europe ex UK TR GBP (%)*

FTSE World Europe ex UK TR GBP (%)*

US

The FTSE All-World North America Index returned 5.4% in sterling terms over August. US equities performed strongly over the month, buoyed by improving economic data as well as Covid-19 vaccine and treatment hopes. While remaining elevated, the numbers of new daily Covid-19 infections recorded in the US also fell over August. US survey data on manufacturing and services indicated an acceleration in activity in August versus the prior month. The Federal Reserve unveiled a new strategy to allow inflation to periodically breach its 2% target to make up for periods of below-target inflation. Meanwhile, President Trump issued executive orders to ban the social media apps TikTok and WeChat from operating in the US if they are not sold by their Chinese parent companies within 45 days.

FTSE All-World North America TR GBP (%)*

FTSE All-World North America TR GBP (%)*

Japan

The FTSE Japan Index gained 5.7% in sterling terms during August, making it one of the best performing markets during what was a strong month for global equities. Japan’s new daily Covid-19 case numbers reached a peak in early August, but subsequently declined over the month. Japanese economic data was mixed, with business survey activity gauges pointing to further contraction in the manufacturing and services sectors. Japan’s economy shrank 7.8% in the second quarter as the Covid-19 crisis hit consumer spending and exports. While the result was less severe than other G7 member countries, it marked Japan’s third consecutive quarter of contraction. Towards month-end, Prime Minister Shinzo Abe tendered his resignation citing poor health, while the ruling Liberal Democratic party was expected to appoint a new leader within weeks.

FTSE Japan TR GBP (%)*

FTSE Japan TR GBP (%)*

Emerging Markets

The FTSE All-World Emerging Index returned 0.2% in sterling terms over August, sharply underperforming the global average. Brazil (-10.6%) slid over the month as political and economic worries hit sentiment, with mounting concerns over the country’s finances given Covid-19 and increased spending pledges. Russia (-1.9%) was hindered by the alleged poisoning of opposition leader Alexei Navalny and unrest in Belarus. China (3.6%) found support from improving economic data. However, this was tempered by rising US-China tensions, with President Trump issuing executive orders to ban the social media apps TikTok and WeChat from operating in the US if they are not sold by their Chinese parent companies within 45 days. India (1.3%) was also positive, despite a continuing rise in the numbers of new daily Covid-19 infections in the country.

FTSE All-World Emerging TR GBP (%)*

FTSE All-World Emerging TR GBP (%)*

Asia Pacific ex Japan

The FTSE World Asia Pacific ex Japan Index returned 0.8% in sterling terms, trailing global equities markets. Malaysia (-5.1%), Thailand (-3.8%) and Taiwan (-3.6%) underperformed, hit by worries over the impact of the Covid-19 crisis. Hong Kong (4.8%) outperformed, boosted by improving Chinese economic data. Australia (4.0%) advanced, finding support from the wider rally across global equities markets. Australia reported a record trade surplus in the 12 months to June as commodity exports to China soared. The Caixin PMI of Chinese manufacturing activity reached multi-year highs in August. However, US-China tensions were on the increase, with President Trump issuing executive orders to ban the social media apps TikTok and WeChat from operating in the US if they were not sold by their Chinese parent companies within 45 days.

FTSE World Asia Pacific ex Japan TR GBP (%)*

FTSE World Asia Pacific ex Japan TR GBP (%)*

Government Bonds

Global government bond yields rose over August. While conventional US Treasury bonds generated negative returns, inflation protected US Treasuries were in positive territory. The Federal Reserve (Fed) unveiled a new strategy to periodically allow inflation to breach its 2% target to make up for periods of below-target inflation. The Fed also suggested it was less worried about employment levels running above real-time estimates of maximum levels. Meanwhile, the Fed’s preferred measure of inflation rose to 1.3% in July from 1.1% in June. US services and manufacturing survey data indicated an acceleration in activity in August versus July. Eurozone headline inflation rose to 0.4% in July versus 0.3% in June. Survey data for August showed expansion in the eurozone manufacturing and services sectors, albeit at a slower pace than in July.

Corporate Bonds

Global corporate bonds generated negative returns over August. While the month was characterised by a rise in nominal US Treasury yields, weakness in the investment grade credit market contrasted with buoyant returns from high yield bonds, which benefited from robust risk appetite. The Federal Reserve (Fed) unveiled a new strategy to allow inflation to modestly breach its 2% target to make up for periods of below-target inflation. Meanwhile, the Fed’s preferred measure of inflation rose to 1.3% in July from 1.1% in June. Global economic data was generally positive in August, though there were some concerns over whether recovery momentum would be sustained. While remaining elevated, the number of new daily US Covid-19 cases fell as the month progressed. In Europe, however, new case levels rose over August.

*Source: Lipper to 31-Aug-20, total return. Indices rebased to zero at 31-Jul-20.

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