Market commentaries

Below you will find our latest set of Monthly Market Commentaries covering a summary of the major investment markets and their respective returns within the period covered.
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August 2017 – Market Commentary

August is a traditionally quiet month in terms of news, with many market participants absent. Last month saw broadly neutral returns from equities. Bond markets were able to offer positive returns, in light of relatively benign economic data. The major themes of Brexit and US/North Korea were largely ignored by investors. The Jackson Hole Economic Conference produced no headlines and, thus far, the forthcoming German election looks set to go in favour of the incumbent Christian Democrat party. Japanese economic data exceeded expectations and inflation achieved a small, but welcome, tick upwards, offering hope that Abenomics is indeed starting to work. UK

August saw little progress in the UK’s Brexit negotiations with the European Union, with the same sticking points of the free movement of people and the ‘divorce bill’ being rehashed in the press on a daily basis. These points are reported to be holding up the very substantial talks that will be needed to work out the fine detail of what the relationship will eventually look like and it seems the longer the current posturing continues, the more speculation about a ‘hard’ Brexit will be heard.

July’s inflation figure remained stuck at the 2.6% figure that it had fallen to in June, and with retail sales continuing at a subdued 0.3% in July, and June’s data showing just 2.1% wage growth, there is still little to suggest that the British consumer is ready to join in the recovery. Consumer confidence, represented by the GfK Consumer Sentiment Index, which has averaged -8.96 over nearly four decades, stands at -10: a little above its recent low of -12, but still looking very sickly in comparison with the level of -1 a year ago. The Index measures households' expectations over the next 12 months regarding their personal finances and the economic situation. By contrast, the CBI Business Optimism Index stands at +5, compared with +1 during the second quarter, and against a long-run average of 3.4. Low unemployment has yet to lead to significant wage inflation, and industrial production is trending upwards from its low in April of this year, hence there is little reason for gloom in the corporate sector. With the Pound weakening by upwards of 2% against all major currencies, the outlook for Britain’s large-cap exporters continues to be relatively benign.

Investment markets were typically quiet during August, with few outstanding features. The FTSE 100 Index recorded a gain of just 0.8%, ending the month at 7430, despite reaching 7531 early in August, less than 20 points below its all-time closing high. Miners were the best performing sector, driven by improving forecasts and increased production, whilst technology was the major laggard as profit-taking continued in a sector that was at the forefront of global equity market performance during the first half of the year. There were few individual stock stories of note, but Provident Financial, the FTSE 100 doorstep lender, saw its shares fall by a further 57% over the month, after a second profit warning saw a one-day fall of 66%. The shares had already fallen by 15% in July, on the first indication that their move towards app-driven lending and re-organisation of doorstep collections was running into problems.

UK fixed income markets performed well, with conventional gilts returning +1.9% overall and up to +3.4% at the longer end. Corporate bonds gave a slightly lower +1.3%, with high-yield bonds offering only +0.7%. Index-linked gilts also rebounded, giving a +4.7% return overall, with +6.1% from the over-fifteen-year stocks. Across the curve, yields softened on comments from Mark Carney suggesting that a rise in the base rate is unlikely this year, reversing comments made earlier in the year.


European equities declined during August with the Euro Stoxx 600 Index down 0.45%. Economic data remained robust, but the strength of the Euro during the month presented a headwind for shares. The biggest laggard was Spanish equities, where the IBEX was down 1.93%. This was due, in large measure, to the terrorist attacks in Barcelona and Cambrils.

Looking at this in more detail, Eurozone GDP growth came in at +0.6% in the second quarter, up from 0.5% in the first quarter. This was supported by faster expansion from the likes of Spain, Netherlands and Austria, whereas France was unchanged and Germany slowed. In terms of business conditions, the manufacturing PMI index rose to 57.4 in August from 56.6 in July, suggesting ongoing growth momentum boosted by domestic demand and rising new export orders. However, the services PMI continued to slow due to fewer jobs being created and a pickup in input and output prices. Inflation over the last month had picked up to higher than expected 1.5% from 1.3% in July.

Overall the region continues to show signs of stable growth with the recent Economic Sentiment Indicator increasing to 111.9, its highest level since July 2007.

Given the stronger data, investors were also looking ahead to the ECB’s policy meeting in September, where market participants are looking out for any signals on the tapering of the quantitative easing programme. It had been thought that some clue might be given by Mario Draghi’s speech at the Jackson Hole conference, but this turned out not to be the case.

Within the equity market, the top performing sectors were transportation, utilities and mining, underlining the broad economic recovery. However, the poorer performing sectors were mostly consumer-facing: Food retail, media, financial services and leisure, adding weight to the idea that the consumer is proving to be a drag on the recovery. Retail sales reported in July saw a month-on-month fall of 0.3%. Fixed income markets remained buoyant with sovereign bonds returning +0.8% and investment-grade corporate bonds giving +0.6%, as the market anticipated no early increase in interest rates. August also saw campaigning begin in earnest for the German elections in September. Following the 2013 election, the 631-member Bundestag is governed by a coalition led by Angela Merkel’s Christian Democrats (311 seats) and the Social Democrats (193 seats). The opposition comprises the Greens and The Left Party. All signs point to a comfortable win for Angela Merkel, who is personally popular, and polling well ahead of Martin Schultz, the SDP leader, at present. There is a possibility that the CDU may end up in coalition with one or more of the other parties, but the expectation overall is for no change. The nationalist AfD has a widespread but small support base, and the best outcome that they could hope for would be to form the main opposition party, though this is just one of many possible outcomes.


The Jackson Hole conference, billed as the event to watch in August, turned out to be the proverbial damp squib. Paul Mortimer-Lee, Chief Market Economist at BNP Paribas summed up the proceedings, saying “It looked as if ECB President Draghi and Fed Chair Yellen had competed to see who could produce the speech least relevant to monetary policy. We call it a 0-0 draw” ( Instead, most media attention during the month was centred around the continuing escalation of tensions between the US and North Korea. Despite this, investment markets remained largely unmoved during the summer period. The S&P 500 Index managed a rise of 0.1%, whilst smaller companies, as measured by the Dow Jones Small Cap Index, were a little weaker, falling by 1.1%. A Bank of America survey, published mid-month, suggested that only 33% of money managers expect corporate profits to improve from here, compared with a figure of 58% in the same survey at the start of 2017, and we have seen in recent weeks how the broadly-based market uptrend has been accompanied by savage markdowns for companies that disappoint even slightly in their earnings. In July, O’Reilly Automotive fell by 20% on announcing sales growth of just 1.7% versus expectations of 3-5%, and in early August, travel group Priceline had its shares marked down by 8% after it reported second quarter gross bookings of $20.8bn, versus expectations of $21.05bn.

The same Bank of America survey saw a record 46% of managers expressing the view that equity markets are overvalued, although positioning among US managers still seems to be pro-risk, and the S&P 500 Index is still trading just above 21 times trailing 12-month earnings – around 23% above the ten-year average.

President Trump’s handling of the North Korean crisis has been criticised for his attempts to use economic measures to exert influence on other Asian nations, particularly China, threatening to cut off trade with any country that does business with North Korea. Previous Presidents have managed to separate security issues from trade issues and co-operate on the one, whilst competing on the other. Mr Trump’s determination to link the two is a departure from historical US policy and it is unclear how the US stands to benefit from it, given that more than a quarter of US exports go to Asia.

Meanwhile, economic data points to a continuing recovery in the US, with inflation rising from 1.6% in June to 1.7% in July, and retail sales exceeded forecasts of +0.4%, with a reported figure of +0.6% in July: an increase on June’s figure of +0.3%. Industrial production also pushed further ahead in July, with a year-on-year increase of 2.2%, compared with 2.1% in the previous two months. August also saw significant increases in both consumer and business confidence, with the former rising from 63.4 to 96.8 and the latter from 56.3 to 58.8. The retail sales data saw a short-term rally in the Dollar, leading to rekindled speculation about further Fed rate rises this year. However, over the month the US currency weakened against both the Yen and the Euro.

Fixed income stocks all offered positive returns over the month, with long-dated conventional Treasury bonds gaining 3.4% and their index-linked counterparts rising by 3.3%. Investment-grade corporate bonds rose by 0.8%, whilst high-yield bonds managed a small gain of 0.2%.

Asia Pacific and Emerging Markets


Japanese equities were flat in August and broadly in-line with other developed markets. Negative returns were realised in the financials sector which fell 3.9%, led by Mitsubishi UFJ Financial (down 4.9%). Positive performance was generated by the industrials and consumer goods sectors. Keyence Corporation, one of Japan’s largest technology companies, was particularly strong, with returns of 12.2% in August following positive financial results released in late July. Economic news was mostly positive with GDP rising 1.0% (quarter on quarter), the strongest result in two years. In addition, industrial production rose 2.2% over the past month (vs. 1.6% expected) and inflation increased to 0.5% year on year. In political news, Prime Minister Abe appeared to recover somewhat from a series of scandals over the past few months which have called into question the stability of the Abe Government and implementation of the “Abenomics” economic reform agenda. Following a cabinet reshuffle in late July which brought in a new team of ministers, Abe’s approval ratings have ticked up and the Liberal Democratic Party backed candidate achieved a solid victory in the Ibaraki prefecture election.

Emerging Markets

Emerging market equities were positive, yet again in August, returning 2.1% in local currency terms, compared to flat returns in developed markets. Emerging market equities continued to experience positive inflows. August saw a lessening of the influence of emerging tech giants in aggregate market returns and broader market participation from other sectors, notably financials, with ICBC, the world’s largest bank by assets, rising 7.1% in RMB terms, and China Construction Bank, the world’s second largest, rising 3.7%. Larger capitalisation companies slightly outpaced smaller and mid-size companies. Among specific countries, Russia and Brazil were the stand out performers with the MICEX (Russia) and BOVESPA (Brazil) indices returning 4.8% and 7.5%, respectively, in local currency terms. Both markets were supported by their largest constituents with Sberbank (Russia’s largest bank) up 11.5% following strong profit results and Vale (the world’s largest producer of iron ore) up 11.7% in-line with rising iron ore prices. South Korea was the laggard with the KOSPI falling 2% in Won terms as political tensions weighed on market sentiment following Trump’s promise to meet any North Korean threat to the US with “fire and fury”.


This report was produced by Independent Strategic Research Ltd (“ISR”). The information contained in this report is for informational purposes only and should not be construed as a solicitation or offer, or recommendation to acquire or dispose of any investment. While ISR uses reasonable efforts to obtain information from sources which it believes to be reliable, ISR makes no representation that the information or opinions contained in this report are accurate, reliable or complete. The information and opinions contained in this report are provided by ISR for professional clients only and are subject to change without notice. You must in any event conduct your own due diligence and investigations rather than relying on any of the information in the report. All figures shown are bid to bid, with income reinvested. As model returns are calculated using the oldest possible share class, based on a monthly rebalancing frequency and all income being reinvested, real portfolio performance may vary from model performance. Portfolio performance histories incorporate longest share class histories but are either removed or substituted to ensure the integrity of the performance profile is met. The value of investments and the income from them can go down as well as up and past performance is not a guide to the future performance. ISR and Independent Strategic Research are trading names of Independent Strategic Research Ltd, registered in England and Wales No. 09061794. Registered office: 34 Southwark Bridge Road, London, SE1 9EU, UK.

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