- Global markets climbed even higher in August as the FTSE All-World Index rose 2.5% over the month after increasing 0.7% the previous month, as liquidity conditions remain relatively supportive.
- The Fed Chair Jerome Powell was relatively dovish at Jackson Hole, signalling that a tighter monetary policy stance will likely be delayed a little longer at this juncture.
- Further progress continues to be made on the vaccination front. 63.4% of the UK population and 52.3% of the US population have now been fully vaccinated.
- China continues to underperform broader emerging markets, as the credit impulse delved even deeper into negative territory.
Global markets climbed even higher in August, as the FTSE All-World Index rose 2.5% over the month after increasing 0.7% the previous month, as liquidity conditions remain relatively supportive - particularly in the US.
While the majority of global economic data is slowing on a rate of change basis, there has been a few upside surprises worth noting. In particular, the US ISM services PMI rebounded to a record high print of 64.1 index points in July, as all industries reported higher sequential growth over the month. The prices paid subcomponents accelerated to a reading of 82.3 index points from 79.5 in June. This is in line with our view that inflation will likely continue to be relatively sticky for the remainder of the year, particularly as shelter prices continue to accelerate. However, the downside surprise in the most recent nonfarm payroll report and the more dovish tone at Jackson Hole by Fed Chair, Jerome Powell, signals that a tighter monetary policy stance will likely be delayed a little longer at this juncture. As always, the Federal Open Market Committee will likely continue to remain data dependent and also assess the impact on Covid-19 on the broader health of the economy.
Market signals were relatively mixed during the month as the VIX “fear gauge”, the dollar, bond yields and credit spreads all rose before decelerating toward month-end. For now, cross asset volatility remains contained, although we maintain that the investment climate will certainly be challenging as we progress further into the second half of the year, particularly as global growth momentum begins to lose steam. We believe that a resolution around the US debt ceiling and communication around the Federal Reserve’s monetary policy programme will be crucial in determining asset market returns going forward. Sectoral performance was also mixed during the course of the month, as a combination of cyclical and defensive sectors outperformed.
The global vaccination rollout continues to make significant headway. According to Our World in Data, the UK and US have now fully vaccinated 63.4% and 52.3% of the population respectively. After recently including that data from China, just over a quarter of the world population has now been fully vaccinated.
We believe that there is further upside in broader equity markets, however, we have become particularly selective in our positioning by lowering the overall beta exposure in the Ashburton multi asset fund range, as a few warning signs continue to rear their head on the global front. In particular, the Chinese credit impulse has delved even deeper into negative territory signalling that the second half of the year will almost certainly experience slowing growth momentum. Additionally, the global thrust from fiscal stimulus has been largely front-loaded resulting in a much more circumspect investing style relative to previous months. We acknowledge that the re-opening of many economies will provide investment opportunities and we will certainly be looking to position for this accordingly.
We continue to believe that a more material recovery is expected on a full-year basis as precautionary savings fully unwind, and as economic activity recovers off a low base. As the vaccine rollout continues, it’s a positive for the global economy as lockdown restrictions continue to be lifted. The inflation trajectory at this juncture is complicated by the degree to which escalating rental and housing costs will begin to reflect in shelter prices (roughly a third of the inflation basket in the US). This will likely keep an elevated floor in future US CPI prints. Some elements of inflation, however, are expected to soften, particularly those impacted by supply chain disruptions. While monetary policy is expected to remain accommodative, talks of a reduction in the Federal Reserve’s asset purchasing programme are expected to commence in the coming months.
Short-term global yield curve movements have been relatively sporadic amid uncertainty on future growth, inflation, and policy dynamics. Accordingly, we are relatively neutrally positioned in the Ashburton multi asset fund range from a duration perspective.
The Global Growth Fund climbed 1.2% , below the peer group and benchmark of 1.4% and 1.6% respectively. An underperforming US fund and a small loss on our gold position were among the main reasons for the underperformance. Nevertheless, the Global Growth Fund has returned 12.1% year-to-date, above the peer group of 10.9%. The USD Global Balanced Fund climbed 1% and the Sterling Asset Management Fund rose 1.1%.
 All performance metrics are stated in I Class terms.