Throughout August, global markets demonstrated remarkable resilience. Despite ongoing geopolitical tensions and mixed economic data, international stock markets bounced back strongly, driven by robust corporate earnings and continued momentum.
Here at home, local retail sales dipped by 0.5% over the second quarter, highlighting a cautious domestic consumer. And year-on-year inflation expectations cooled from 2.5% down to 2.3% for the third quarter, signalling that price pressures are easing.
Just after month-end, the Reserve Bank of New Zealand (RBNZ) increased the Official Cash Rate (OCR) by 0.25% to 2.75%. Despite the uneven economic recovery and broader global headwinds, the RBNZ Monetary Policy Committee reiterated its confidence that domestic economic growth and employment will improve over the medium term and that tighter monetary conditions are appropriate.
The US economic signals were mixed in August. While business sentiment continued to improve and the unemployment rate edged down to 4.1%, annual inflation remained elevated at 3.4% and second-quarter GDP growth came in slightly lower than expected at 1.5%.
Despite these mixed economic indicators, corporate America delivered strong earnings. US shares were among the best global performers, with the S&P 500 rising 2.7% in USD. A strong earnings report from AI leader Nvidia helped restore confidence in the technology sector, though returns across large tech companies showed divergence as investors sought proven fundamental earnings over market hype.
In bond markets, US Treasury returns were up a modest 0.3% in USD. Federal Reserve Chair Warsh signalled that rates may need to stay higher for longer, as recent inflation data hadn’t improved enough. However, the US Treasury balanced market expectations by announcing an unexpected increase in long-term bond buybacks, helping stabilise longer-term interest rates.
Eurozone economic data was largely in line with expectations, showing Q2 economic growth at 0.9% and annual inflation at 2.9%. European markets saw modest gains, with the STOXX Europe 600 index edging up 0.5% in EUR, aided by the global rebound in technology and growth stocks. European government bonds lost 0.6% in EUR as bond yields rose, particularly in France due to upcoming budget negotiations.
Japanese equities were a standout performer, rising 3.9% in JPY, supported by demand from US AI data centre infrastructure and a weaker Japanese yen. Conversely, Japanese government bonds declined 0.9% in JPY as longer term yields reached multi-decade highs amid rising domestic inflation.
Agricultural commodities saw notable price gains, led primarily by wheat, amid concerns over supply disruptions in Eastern Europe and building El Niño weather patterns. Meanwhile, Brent crude oil remained around the 90 USD per barrel, with ongoing geopolitical tensions in the Middle East. Elevated commodity prices could eventually fuel higher inflation, potentially leading central banks to keep interest rates higher for longer.
The market movements in August reinforce one of our core investment principles: diversification remains one of the most effective tools for building and protecting long-term wealth.