City thinking, local knowledge

August Market Commentary

By Questa Chartered

It was a mixed picture across the globe in July, with many major economies beginning to see their efforts to tackle inflation pay off.

But while progress is being made in some countries, growth remains sluggish and inflation remains high in several key markets, most notably the UK.

As always, let’s take a closer look at the details.


The UK economy contracted by 0.1% in May 2023, according to the Office for National Statistics, partly because output was hit by the bank holiday for the King’s Coronation. This followed a surprise increase of 0.2% in the previous month, and reinforced the view among many economists that the country is only likely to see slow growth at best this year.

There was some better news regarding inflation, however, as it fell from 8.7% in May to 7.9% in June. This was a welcome development for the government, which has made halving inflation this year one of its top priorities. Nevertheless, it remains well above the Bank of England’s official target of 2% and the inflation rate in many other developed nations.

Concerns that high inflation will persist have been driven partly by a record annual increase in UK wages. According to official figures, regular pay went up by 7.3% between March and May 2023, when compared with the same period of the previous year.

UK Prime Minister Rishi Sunak again met with US President Joe Biden last month during talks in London, where they discussed a range of issues including ongoing military support for Ukraine. During the meeting, Mr Biden said he “couldn’t be meeting a closer friend and a greater ally”.

July was a big month for the UK car industry, with French manufacturer Renault and Chinese carmaker Geely confirming plans to set up a new headquarters in the UK and concentrate on developing hybrid, diesel and low-emission petrol engines.

Meanwhile, a new electric car battery factory is to be created by Jaguar Land Rover-owner Tata in Bridgwater, Somerset. This will be one of the largest gigafactories in Europe and will be supported by hundreds of millions of pounds worth of government subsidies.

Elsewhere in the business sector, consumer goods manufacturer Unilever, the company behind brands such as Marmite, reported significant pre-tax profits of £3.34bn for the first half of 2023.

However, this prompted criticism from some quarters, with the Unite union saying it shows “greedflation in action” at a time when many people are struggling with rising food costs. Similarly, British Gas was heavily criticised after reporting record half-year profits of £969m, as energy bills remain extremely high for millions of households.

It’s also been a difficult few weeks for private bank Coutts, which found itself in trouble after former Brexit Party leader Nigel Farage had his account closed. Mr Farage obtained a report showing that his political views were partly behind the decision to close his account, and the row prompted the resignation of NatWest Group chief executive Dame Alison Rose and Coutts boss Peter Flavel, as well as the intervention of Rishi Sunak and other senior government figures.

Mr Farage has now launched a website to “fight back against the big banks that have let us down” and described the de-banking of individuals as “a major national scandal”.

The pound ended July up 0.13% against the dollar, and on the financial markets, the FTSE-100 Index ended the month at 7,710 points, up 2.38% on June.


As the war in Ukraine continued, there was a surprise development when Russian President Vladimir Putin said he does not reject the idea of peace talks. Mr Putin stated that an initiative put forward by African leaders could “become the foundation of certain processes towards a peaceful resolution, just like China’s initiative.” However, he insisted that a ceasefire would not happen for as long as Ukraine remains on a strategic offensive.

The comments came amid pressure on the Russian President to revive a deal that allows Ukraine to export grain. Russian President Vladimir Putin insisted it is vital that the deal be renewed so the poorest African countries can receive the grain they need.

Europe’s ongoing solidarity and support for Ukraine was again reinforced when Irish Taoiseach Leo Varadkar made an unannounced visit to the country and met with President Volodymyr Zelensky, and pledged an additional £4.3m in humanitarian aid.


July saw parts of Europe face a significant heatwave, which led to wildfires breaking out in parts of Italy and Greece. The Greek island of Rhodes was among the worst-hit locations, with holidaymakers being evacuated and a state of emergency being declared.

The implications of this summer’s extreme weather on the future of the tourism industry in and around the Mediterranean remains to be seen, but there are concerns that it could deter some potential visitors in the next few years.

Last month also saw the European Central Bank (ECB) increase the eurozone’s key interest rate to 3.75% – its highest level in more than two decades.

ECB Vice President Luis de Guindos has pointed out that while underlying price pressures remain strong, “most indicators have started to show some signs of softening”. However, he said inflation remains too high, which suggests that further rate increases could be in store later in the year.

Elsewhere, there was good news regarding trade, with the European Union signing a new free trade agreement with New Zealand, which is expected to increase bilateral trade by almost a third over the next decade.

Another economic boost came with the news that SAIC Motor, the largest car manufacturer in China, is to build its first factory in Europe. The site will focus on the production of electric vehicles, following a surge in sales across the continent in recent months.

The European Commission has also announced a deal with the US to allow businesses to freely transfer data between the EU and the United States. While data privacy activists have objected and pledged to launch a legal challenge, the deal has been welcomed by President Joe Biden and EU officials.

It was a big month for domestic politics in Europe, with the Dutch Prime Minister announcing he would not run for another term in office after a row over asylum policies led to the collapse of his government. An election in Spain, meanwhile, did not produce a decisive winner, and both the conservative People’s Party and the incumbent Socialists are now working to form their own coalitions.

On the financial markets, Germany’s DAX index rose by 2.00% in July to end the month at 16,470 points. Meanwhile, the French CAC 40 index went up by 1.45% to end at 7,507 points.


Like Europe, the US was also hit by extreme summer heatwaves in July, with millions of people under “dangerously hot conditions” alerts and temperatures exceeding 38 degrees in some areas. It will be interesting to see what impact this has on the US’s economic performance when official figures for July are published.

As far as the latest data goes, figures showed that the US economy expanded by 2.4% in the three months to June year-on-year. This was up from 2% in the previous quarter and much higher than many analysts had expected.

The increase in output was driven by many factors, including increased business investment and an upturn in consumer spending.

There was further good news as inflation fell to its lowest level in more than two years in June, with the rate of price growth dropping from 4% in the year to May to 3% in the year to June.

This suggests that the US Federal Reserve’s strategy of increasing interest rates to curb inflation is paying off. Interest rates were increased to a range of 5.25% to 5.5% in July – their highest level in 22 years and the 11th increase since early 2022.

However, there was less positive news in the employment market, with employers adding 209,000 jobs in June. This was the smallest increase in more than two years and less than many analysts had anticipated. Despite this, the unemployment rate still fell from 3.7% in May to 3.6% in June.

The ongoing drama at Elon Musk’s Twitter continued throughout July, with the social media platform’s owner rebranding it to “X” and getting rid of the famous blue bird logo.

Business rival Mark Zuckerberg at Meta has sought to capitalise on increased user discontent with Twitter by launching Threads, which attracted more than 100m users in less than five days. However, it has subsequently lost more than half its users, so it remains to be seen whether it will be able to establish itself as a viable alternative to Twitter.

Meanwhile, electric car manufacturer Tesla has enjoyed a strong period of training, delivering a record number of vehicles between April and June in key markets including the US, China and the UK.

Last month also saw many famous Hollywood actors down tools to join screenwriters in a strike over pay working conditions. Many of those on strike have also raised concerns about the impact of artificial intelligence (AI) on the film industry, with the Screen Actors Guild actors’ arguing it poses an “existential threat to creative professions”.

The White House is seeking to address concerns about AI and has recently engaged with leading companies including Amazon, Google and Microsoft on how to manage the risks it poses. In a joint announcement with President Biden, they committed to taking steps such as testing the security of AI and making sure people can spot AI by implementing watermarks.

On the financial markets, the Dow Jones rose by 3.20% to end the month at 35,509, while the more broadly-based S&P 500 index went up by 3.10% to end at 4,588.

Far East

China’s economy saw strong year-on-year growth of 7.3% in Q2, although it admittedly started from a low base as Covid restrictions had only recently been lifted this time last year. However, a poll of economists by Reuters suggests that momentum is slowing and more stimulus measures could be needed soon.

Official figures show that the economy grew by just 0.8% in the three months to the end of June, which may be partly down to a slump in exports to other nations. The number of exports from China went down for the second month in succession in June, dropping by 12.4% in dollar terms from the previous year. Youth unemployment, meanwhile, hit a record high of 21.3% in many urban locations last month.

Against this backdrop, China announced that Pan Gongsheng would be the new governor of its central bank, the People’s Bank of China.

Continuing tensions between the US and China also loomed large last month, although two significant visits showed an effort to improve relations is well underway. US Treasury Secretary Janet Yellen visited Beijing and although she acknowledged the two countries have “significant disagreements”, she described the talks as “direct, substantive and productive” talks.

Her visit was swiftly followed by the arrival of US special envoy for climate John Kerry, who made a point of stressing his desire to “stabilise the relationship” between the US and China.

Technology has been a particularly thorny issue for the two countries, with the US seeking to limit China’s access to tech that it believes could be used for military purposes, such as AI and chips for supercomputing. The Chinese government has now announced that special licences will be needed to export two key materials used to make computer chips – gallium and germanium – from August.

Meanwhile, in Japan, the country’s central bank has kept its benchmark interest rate at minus 0.1%. The Bank of Japan acknowledged that the economic outlook is uncertain and that greater flexibility will be needed over the coming months.

Estimates from the Japan Center for Economic Research suggest that Japan’s economy shrank by 0.2% in May, partly due to declining exports. The organisation now expects to see year-on-year growth of 5.6% between April and June.

Inflation has been among the raft of issues facing the Japanese economy in recent months, with consumer price inflation rising from 3.2% in May to 3.3% in June. That means inflation has been above the Bank of Japan’s target for 15 months in succession, and significantly higher than average wage growth.

In South Korea, GDP rose by 0.6% between April and June, when compared with the previous quarter, when economic output rose by 0.3%. However, the country’s economy was hit by shrinking factory activity, which has now been contracting for an entire year.

The South Korean government, meanwhile, is seeking to respond to a likely increase in demand for electricity, driven by the growth of high-tech industries and electric vehicles, by reviewing the need for new nuclear power stations.

On the financial markets, Hong Kong’s Hang Seng index rose by 6.15% to end July at 20,078. Meanwhile, Japan’s Nikkei index slumped by 0.05% to 33,172. China’s Shanghai Composite index rose by 2.78% to 3,291 and the Korea Composite Stock Price Index went up by 2.66% to 2,632.

Emerging Markets

India has been tipped by Goldman Sachs to overtake the US, Japan and Germany by becoming the world’s second largest economy by 2075. The country is currently the fifth largest economy in the world.

Boosting its technology industry has been among the government’s priorities in recent years, but this has taken a blow after Apple supplier Foxconn pulled out of its plan to build a chip making plant in Gujarat.

Concerns have also been raised about India’s online gaming industry following the government’s decision to impose a 28% tax on the face value of a gaming transaction. The announcement led to shares in online gaming platforms and casinos plummeting and critics arguing that the industry is now in considerable jeopardy.

Sanction-hit Russia is, of course, continuing with its offensive against Ukraine, and the financial impact of this is becoming clear.

In June, the Russian currency fell to its lowest level since the beginning of the war. Anatoly Aksakov, chairman of the Duma Financial Markets Committee, subsequently admitted that the temporary collapse of the ruble was caused, at least in part, by the need to fund the occupation of areas that have been illegally annexed by the Russian government.

While Russia remains extremely isolated on the world stage, it did recently hold a summit in which President Putin met with 17 African leaders.

The ongoing war is also weighing heavily on the minds of many members of the public in Russia. A new poll by the Levada Center found that 58% of Russians believe that “hard times are yet to come” – a reflection perhaps of the impact that sanctions are having on people’s day-to-day lives.

The poll was carried out shortly after Yevgeny Prigozhin, head of mercenary group Wagner, staged an apparent mutiny, a shocking move which raised questions about Putin’s grip on power.

Despite this apparent gloom, Putin himself is confident about Russia’s prospects, saying that its economy is performing better than expected.

In Brazil, a survey by Genial/Quaest revealed that 53% of financial market participants believe the country’s economy will improve over the next year. This is up from just 13% in a survey carried out in May.

Similarly, the number of respondents believing conditions will deteriorate fell from 61% to 21%, which may reflect a change in sentiment following the election of President Luiz Inacio Lula da Silva.

The increase in confidence may also be a consequence of falling inflation in Brazil. Annual inflation fell from 3.94% in May to 3.16 in June, while prices fell by 0.08% month-on-month.

July also saw Brazil’s efforts to protect its natural resources bear fruit, with deforestation in the Amazon rainforest falling by more than 33% in the first half of the year, when compared with the same period of 2022. President Lula has previously said he wants to end deforestation by 2030.

On the financial markets, India’s BSE Sensex index rose by 2.80% to end at 66,527 points. Russia’s MOEX index rose by 9.42% to close at 3,060 points, while Brazil’s Bovespa index ended the month at 121,901 points.

And Finally…

We often anthropomorphise animals, but a zoo recently had to fend off criticism from some visitors who thought their animals were actually people in costumes.

Hangzhou Zoo in China was criticised after pictures of bears standing on their hind legs like humans were shared online. The zoo had to go on social media to insist that its sun bears are smaller and look different to other bears, and assure the public that they are absolutely genuine.

Weirdly enough, this wasn’t the only unusual bear-related news to hit the headlines in July, as police in Southern California recently had to deal with a bear cooling off in a homeowner’s jacuzzi as the region was hit with an extreme heatwave.

The bear couldn’t have looked more relaxed as he took a dip, but thankfully, it moved on without incident and left the occupants of the house in peace.

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