From the outset, geo-political concerns buffeted world stock markets of August.
These concerns were front and centre, with North Korea ramping up its missile test program, including a launch over Japan that sparked Japanese government warnings for citizens to take refuge in solid buildings or underground shelters. President Trump in turn ratcheted up the rhetoric on the US preparedness to deal with threats to it or its North Asian allies, and the perceived ‘safe haven’ assets, in the form of gold, the Japanese yen, the Swiss franc and US Treasuries, saw plenty of action over the month.
While these geo-political concerns took centre stage, extreme weather then intervened, as Hurricane Harvey hit the southern United States, causing major damage. Early estimates put the damage bill from Harvey at up to US$180 billion (AUD$225 billion).
As if this were not enough to give markets a bad month, the constant uncertainty of US politics threw up another surprise in August with the threat by President Trump to shut down the US government if Congress refuses to fund the border wall with Mexico that was a central promise of his election campaign. According to Standard & Poor’s, the last time the US government shut down, in October 2103, an estimated US$24 billion in economic output was lost, equivalent to 0.6% of projected annualised GDP growth.
These developments threatened to overshadow the data released in August showing that US economic growth hit an annualised 3% in the second quarter, revised upward from initial estimate of 2.6%, and representing the US economy’s strongest pace of economic growth in more than two years. Consumer spending was the standout, rising 3.3% in the second quarter. The July jobs number was very strong, with the US economy adding a better-than-expected 209,000 jobs in July: in a separate survey, US private-sector hiring spiked in August, with payroll processor ADP reporting that employers added a seasonally adjusted 237,000 jobs during the month, well ahead of the consensus forecast of 185,000.
The strong jobs data helped to push the blue-chip Dow Jones Industrial Average to another record high, helped by upbeat corporate profits for the second quarter, in what was described as the best earnings season for US companies in 13 years. The benchmark S&P 500 index posted its fifth consecutive monthly gain, a rise for August of less than 0.1%; the Dow Jones Industrial Average gained 0.3% over the month; and he tech-heavy Nasdaq Composite Index gained 1.3%.
The Eurozone economy grew by 0.6% in the June quarter, matching the rate seen in the previous quarter, but year-on-year growth accelerated from 1.9% to 2.2%, to its fastest pace since 2011. German GDP grew by 0.6% in the most recent quarter, Spain posted 0.9% growth, France reported 0.5% and the Netherlands provided the biggest surprise, surging by an unexpectedly strong 1.5%. In contrast, UK GDP growth underwhelmed, reported at 0.3% for the June quarter, and 1.7% year-on-year.
On the European markets, the STOXX Europe 600 index lost 1%, with the DAX in Germany down by 0.5% and the CAC 40 in France easing 0.2%. In the UK, the FTSE 100 gained 0.8%.
In Asia, China's official manufacturing purchasing managers’ index (PMI) racked up its 13th straight monthly reading in expansionary territory (above 50), rising from July’s figure of 51.4 to 51.7, showing that factory activity remains strong. And the private Caixin China manufacturing PMI – which covers smaller, private firms – notched a six-month high of 51.6 in August, beating analyst expectations. However, the official non-manufacturing PMI for August, industrial output and retail sales for the month of July all missed analysts’ expectations.
The Japanese economy grew at an annualised rate of 4% in the June quarter, easily exceeding the 2.5% rise forecast in a Reuters poll. That made six quarters in a row of growth, now the longest expansion in more than a decade. Rising domestic demand is the major contributor to growth, ameliorating weaker Japanese exports. If the economy grows in the current quarter, that would represent Japan’s best economic growth streak since 2001.
In the June quarter, a record 68% of Japan’s listed companies reported higher net profit than a year ago. In Korea, the company earnings picture is also very strong. According to analyst estimates collated by Bloomberg, the KOSPI index companies will lift their aggregate earnings by 88% this year, to the highest level since 2010.
On the Asian markets, despite the strong economic results for Japan, the Nikkei 225 ended August down 2.1%, a second straight monthly decline, with the KOSPI in South Korea falling1.6%, but the Shanghai Composite Index gained 2.7% and the Hang Seng in Hong Kong added 2.4% to make it eight consecutive monthly gains, making this the index’s longest spell of monthly rises since 2007. In Australia, the S&P/ASX 200 Index shed 0.1%. The FY2017 earnings reporting season concluded with 67% of companies reporting higher profits than a year ago, and 64% increasing dividends.
On the commodities front, gold gained 4.1% on safe-haven buying, while iron ore surged 7.1%, copper gained 6.6%, aluminium climbed 10%, zinc surged 13% – touching its highest price in a decade – and nickel put on 16%. West Texas Intermediate crude oil shed 5.9%, while Brent crude lost 0.5%.
This information is current as at 31/07/2017.
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