Market Review August

UK

The FTSE All-Share Index lost 3.6% in sterling terms during August, underperforming the global average. There was increasing speculation that the UK would leave the EU without a deal in October, especially after the new administration led by Boris Johnson revealed plans to suspend parliament in September. UK equities also suffered from increased global risk aversion amid further escalation in the US/China trade dispute. The UK economy contracted by 0.2% in the second quarter, with manufacturing activity hit by the unwinding of Brexit-related stockpiling. The Bank of England cut its growth forecasts to 1.3% for both 2019 and 2020 versus its prior respective forecasts of 1.5% and 1.6%, citing Brexit uncertainty and global trade tensions. In terms of sectors, technology hardware & equipment (16.0%) led over the month, while industrial metals & mining (-19.4%) underperformed.

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

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Europe

The FTSE World Europe ex-UK Index lost 1.4% in sterling terms. Eurozone economic data was generally weak, with the German economy shrinking by 0.1% in the second quarter. Meanwhile, the Germany ZEW index of economic sentiment and the Ifo business climate barometer for August fell to multi-year lows. The Bundesbank warned of a potential further contraction for the German economy in the third quarter, citing the escalating US/China trade war and a possible no-deal Brexit. Separately, data showed the value of trade between eurozone states declined at its fastest pace in over six years in June. Nevertheless, survey data suggested a modest improvement in eurozone economic activity in August versus July, driven by an improvement in service sector activity. Italy appeared on course to hold fresh elections following the collapse of its coalition government.

FTSE World Europe ex UK TR GBP (%)*

US

The FTSE All-World North America Index fell 1.2% in sterling terms over August. Trade tensions intensified as the Trump administration placed tariffs on a further $30bn of Chinese imports, prompting China to retaliate with fresh tariffs on US goods. US Treasury yield curve inversion highlighted rising concern over the possibility of an imminent US recession. Domestic economic news was mixed, with survey data suggesting the US manufacturing activity had contracted for the first time since 2009 in August. US retail sales rose 0.7% in July, surpassing economists’ forecasts. US non-farm payrolls rose by a healthy 164,000 in July, in line with estimates, though down from the prior month. Wages grew at 3.2% year on year in July, a slight acceleration versus June. However, the US core personal consumption price index remained unchanged at 1.6% in July.

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

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*Source: Lipper to 30 August 2019, total return. Indices rebased to zero at 31 July 2019.

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