Central bank policy continued to take centre stage in August. At the start of the month, the Bank of England unveiled a strong stimulus package in response to the aftermath of the Brexit vote. This included a 25bp interest rate cut, a term funding scheme as well as both sovereign and corporate quantitative easing. Furthermore, the Bank of England cut its GDP growth outlook to 0.8% from 2.3% for 2017, and to 1.8% from 2.3% for 2018. UK equities performed well over the month, whilst Sterling continued to depreciate against the Australian dollar.
In contrast, at the end of the month, at the annual symposium at Jackson Hole, US Federal Reserve Chair, Janet Yellen, signalled to markets a near term increase in the Fed Funds rate was back on the table noting the continued solid performance of the US labour market. This led US short term rates higher with the US 2 year Treasury yield moving up 13bps to 0.8%, the USD appreciated against the AUD and the S&P 500 was broadly unchanged (+0.1%) over the month. In Japan, equity markets moved higher towards the end of August, recovering earlier losses over expectations that the Bank of Japan would have to take additional easing measures to meet the bank’s inflation target. Emerging market equities sustained their upwards momentum as economic conditions appeared to stabalise and capital inflows continued across the major emerging markets, driven by yield seeking investors.
Closer to home, the Australian equity market lagged its global counterparts and weakened over the month. The S&P/ASX 200 fell 1.6% amidst a fairly downbeat Australian reporting season, including a slower second half to financial year 2016 and cautious corporate outlooks. Furthermore, the Reserve Bank of Australia cut rates by 25bps to 1.50%, citing weak inflation and a moderating housing market. Commodities diverged in August with energy moving higher while metals declined.