Describing the markets in August as a rollercoaster ride may be a cliché, but it accurately captures the month's dramatic swings. When the markets were down, they looked dire, but when they rebounded, it was a sign of resilience and a ray of hope, akin to the arrival of a long-awaited summer.
On 5 August, global markets began a downward spiral, starting in Asia due to concerns about US economic data and geopolitics. The Nikkei plummeted almost 13% at one point, a shockwave that reverberated across Europe and the US, with the VIX hitting 65 during the day before easing off. Ten days later, markets were back to where they were before the freefall, a situation that vividly illustrates the interconnectedness of markets and the overall nervous nature of today's markets.
More broadly, from an economic perspective, economic data is coming together. US and UK inflationary pressures are generally easing, although UK inflation ticked up slightly in July. US retail numbers were impressive, with second-quarter growth stronger than expected, while the UK reported robust growth. Eurozone August inflation likewise fell to its lowest level since mid-2021. However, try telling that to Germany, which lurches from one crisis to the next - Germany's August S&P Global's Purchasing Managers' Index came in at 48.5, the second month of contraction.
In the run-up to the Jackson Hole Economic Symposium, traders were banking on a September rate cut. Now, with Fed Chair Powell saying the "time has come" to cut rates, the Fed cannot afford to not come through with the goods. If the Fed fails to come through, we will see a repeat of 5 August and worse. However, in El-Erian's view, the overall market bullishness needs to be more balanced, with the market pricing in too many cuts.
Traders see another ECB interest rate cut on the cards as eurozone wage growth slows. In the UK, the Bank of England cut interest rates for the first time since 2020, moving them into line with Europe - with economists believing there will be one more this year.
From a political perspective, the US Presidential race is a highly significant factor. While Trump and Harris have their differences, their shared stance against China is a point of caution and potentially a market to avoid later this year. As we approach 5 November, the future of American politics remains uncertain, which will, without doubt, move markets.
Given the market turmoil, equity markets closed the month remarkably well. The S&P 500 and Nasdaq were in positive territory, +2.3% and 0.7%, respectively, despite most tech stocks closing the month down - Tesla -7.8%, Alphabet -4.7% and Amazon -4.5%. In Europe, the FTSE 100 hardly moved, +0.1%, while the Dax was +2.2%. Asia proved harder going, with the Nikkei 225 -1.2% and Shanghai Composite Index -3.3%.
In commodities, the Bloomberg Commodity Index was up 0.1%, and yet there was sizeable movements in oil, with WTI -6.3% and Brent -4.8%; while TTF Gas was +7.6% and UK Gas +10.0%. Precious metals were more mixed, with gold +1.3% and silver flat. In softs, cocoa was again rallying hard, +19.6%.
Crypto struggled in August. Ether was -21.8% and bitcoin -8.5%. According to Coinbase, Ether's weakness was down to "net buyer interest divergence."