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Monthly Wrap

DFM Monthly Wrap: August 2023

US equities stumble amid China and Fed concerns. Euro-area business contracts, with Germany facing historic import declines. The Bank of England raises rates amid UK inflation, and South Africa grapples with economic hurdles as CPI eases to 4.7%. Amidst global uncertainties, markets navigate turbulence.
3 min read

Key Points

  • US equities face headwinds from China’s economy and Fed rate hikes.
  • S&P 500 falls by 1.6%, Euro-area business activity shrinks.
  • Germany records its worst import decline since 1987.
  • UK’s Bank of England raises rates due to high inflation, South Africa tackles economic challenges with a 4.7% CPI slowdown, creating global financial market turbulence.
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United States

It was a tough month for US equities mainly due to concerns about the Chinese economy and that the Fed will keep benchmark lending rates higher for longer than anticipated. The S&P 500 Index lost 1.6%, while the tech-heavy Nasdaq dropped 2%. US company earnings for Q2 were better than expected – but still in single-digit negative territory year-on-year – while revenue growth was marginally in the green.

UK/Europe

The Euro-area Composite PMI Output Index, which combines data from both the manufacturing and service sectors, fell to a 33-month low of 47.0 from 48.6 in July, suggesting that business activity shrank for a third consecutive quarter. Germany reported a 13.2% decline in imports for the year up to July, marking the steepest contraction since January 1987. The Bank of England (BoE) continued to raise interest rates. The UK is still facing high inflation and the latest data showed that basic wages reached a new record growth rate of 7.8% year-on-year.

Asia

China’s central bank unexpectedly cut a range of key interest rates in a bid to spur growth in its sputtering economy. Cracks in the Chinese economy have been evident recently, which was further unmasked by disappointing trade numbers and the latest deflationary prints. The CSI 300 Index retreated 6% in August.

South Africa

Poor global sentiment spilled over to SA with the JSE All Share Index losing 4.7%, mainly due to the resources sector losing 10%, and Chinese-exposed shares such as Naspers, Prosus and Richemont. Bonds did not perform much better, with the ALBI losing 0.23%. Yields on South African local-currency bonds rose after data showed the government ran a record budget deficit in July. CPI slowed more than expected to 4.7% in July, despite a 14.2% increase in electricity prices. Core inflation came in at 4.7%. The rand lost 5.6% against the dollar in August as concerns over global growth lifted the safe-haven greenback.