In August 2022, 1/central banks renewed their strong messages to fight against inflation, 2/Equity and fixed income under pressure, 3/ the safe-haven dollar, 4/natural gas shortage.
1/Fed and ECB determined to bring inflation down. The ECB announced that main policy rates will be raised again by 50bps in September. Also, the use of the Transmission Protection Instrument (TPI) - to support Southern economy if borrowing cost become prohibitive - will be subject to discretion. At the Jackson hole gathering, the Fed emphasized its willingness to do what it takes to bring inflation down to 2%. The tone was more hawkish than expected.
2/Equity and Fixed Income Down. Following Powell speech and Kashkari’s comments, the S&P500 crossed below 4,000 and ended the month down by 4.24%. Main developed market equity indices were in negative territory. On the fixed income side, short term rates rose higher than longer ones indicating market uncertainty. The US and EU 10Y-2Y spread declined by 19.7bps and 6.26bps respectively. In credit, the protection cost to hedge against the US and EU High Yield companies increased by 62bps and 79bps to 533bps and 588bps respectively.
3/The Safe-Haven USD. The USD strengthened against the major currencies and rose by 13.6% between January and August 2022.
4/ Natural Gas Shortage. Russia cut back on supplies of natural gas to Europe using it as an instrument of war. The price of natural gas rose by 11% in August and by 145% between Jan and August 2022.
Equity Indices: SXXP: -5.29%, NASDAQ: -5.22%, SX5E: -5.15%, MSCI WORLD: -4.33%, SPX: -4.24%, STOXX 600 BANK: -1.59%, STOXX 600 OIL&GAS: +1.93%,
Bonds: GER 10Y: +72.4bps, US 10Y: +54.4bps, GER 2Y: +92.1bps, US 2Y: +60.9bps
Commodities: Gold: -3.11%, Oil: -9.20%, Natural Gas: +10.91%
FX: DXY: +2.64%, USDJPY: +4.27%
From a regional perspective, US equities were bought while European as well as International DM were not in favour. On the fixed income side, strong activity in US and EU govies.