Cooldown After A Steady Rally

Following a consistent upward trend spanning from March to July, global stocks experienced a decline, depicting a relatively lacklustre August. While the optimism surrounding a robust economy and controlled inflation remains, it has met with the opposing forces with a recent uptick in interest rates [EasyDNNnews:PaidContentStart]

In the past fortnight, the S&P 500 retraced approximately 2 per cent, contributing to a nearly 5 per cent reduction in the stock market's performance for the month of August. It's worth recalling that equities had witnessed a substantial increase of 19 per cent from mid-March up to the beginning of this month. Therefore, we can categorise this as a standard and beneficial correction. Nonetheless, there has been a noticeable shift in sentiment lately, prompting the question: "What factors have caused this shift?" 

Market sentiment in the US markets got hit last week as stocks experienced a widespread decline, likely due to a significant upturn in longer-term bond yields and concerns about a substantial deceleration in China's economy. The S&P 500 Index concluded the week with a 5.15 per cent decrease from its peak on July 26. 

"Official data released for July indicated a continued weakening in China's economic activity. The growth of fixed asset investment during the first seven months of 2023 fell short of forecasts. Urban unemployment in China edged up to 5.3 per cent from June's rate of 5.2 per cent. "

The important economic release from the US was the report from the Commerce Department regarding July's retail sales. These sales witnessed a 0.7 per cent surge over the month, nearly twice the consensus estimates. Excluding the volatile automobile segment, sales displayed a 1.0 per cent increase, resulting in a 3.2 per cent year-over-year gain. Notably, sales at restaurants and bars saw a remarkable 11.9 per cent jump, while online purchases experienced a surge of 10.3 per cent. In contrast, sales at gas stations plummeted by 20.8 per cent. 

In Europe, the STOXX Europe 600 Index, experienced a decline of 2.34 per cent. This downturn was prompted by escalating apprehensions surrounding China's economic prospects and the potential for an extended period of elevated interest rates across Europe. The major stock indices within the region also exhibited weakening performance. France's CAC 40 Index retreated by 2.40 per cent, Germany's DAX saw a decline of 1.62 per cent, Italy's FTSE MIB surrendered 1.81 per cent, and the UK's FTSE 100 Index underwent a substantial drop of 3.48 per cent. In the UK, wage growth accelerated, placing additional pressure on the Bank of England (BoE) to consider further interest rate increases. Sequentially, the unemployment rate rose more than anticipated to 4.2 per cent, compared to the previous three months' rate of 3.9 per cent. 

Against the backdrop of concerns surrounding the broader repercussions of China's macroeconomic frailty and its problematic real estate sector, Japan's stock markets experienced a downturn throughout the week. The Nikkei 225 Index fell by 3.2 per cent, and the TOPIX Index witnessed a 2.9 per cent decrease. Companies related to tourism were particularly affected by the decline in share prices. In China, the equity markets faced losses due to pessimism surrounding the country's slowing economic recovery. The Shanghai Stock Exchange Index recorded a decline of 1.80 per cent, and the prominent blue-chip CSI 300 index experienced a 2.58 per cent drop. In Hong Kong, the Hang Seng Index, a key benchmark, plummeted by 5.89 per cent, marking its most significant weekly decrease in five months.

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