Welcome to the first September installment of Money Matters! Not only are we seeing movements in the markets of late, but seasons are beginning their changes with the equinox for Autumn and Spring between Northern and Southern Hemispheres due in late September as well as the return to school for those in the North too.
A snapshot of the market movements last week saw the Hang Seng down -1.3%, UK FTSE down -0.5%, and the US S&P down -1.9%. The topic of Syria dominated news headlines and conversations last week which added to concerns of the already fragile global market. However, by late in the week, all things Syria were somewhat quelled, with US action there seeming less imminent for the time being.
With this, investors were able to re-focus their attention back to the data, and China didn’t disappoint. Posting some initial strong numbers, this is a positive sign that the world’s second largest economy is gaining some traction. We mentioned that China’s July trade numbers were strong but that after several months of weak data prior, they would want to reverse that and have a string of positive numbers to give this trend some legs. And this seems to be the direction in which China’s headed with these latest figures.
China’s PMI data (essentially a gauge for the manufacturing sector) rose in August to 51, up significantly from its July reading of 50.3. These figures are also calculated independently by HSBC so this typically results in slight differences between reported figures. Nonetheless, the trend is the same in that there was improvement with HSBC PMI numbers at 50.1 in August, compared to 47.7 in July. Although we’d prefer to see smaller swings and less volatility to make it easier to accept steady improvement, having some sectors improving in July and now some sectors showing improvement in August, these back to back months of some better than expected data out of China certainly helps to return some confidence in investors and the market. And, in the first few hours of trading on Monday morning, the Hong Kong Hang Seng index recovered all of its losses from last week, only further boosting confidence for the week ahead. It’s yet to be seen whether these numbers are sustainable and will hold through the week, but with US Markets having closed for Labor Day weekend it looks as if world markets will be aiming to use this time to recover some of the losses seen.
Supporting this potential recovery in figures should be the US revision to 2nd quarter GDP which has now been reported at 2.5% from initial readings of 1.7%. This is an interesting revision however given that consumer spending barely increased in the last month of the quarter and the fact that consumption accounts for over 2/3 of the US economy. Why are we curious about this revision you ask? Perhaps we’ve seen the US alter their numbers too much in the past, especially during periods of either political elections or important central bank meetings, and so perhaps we’re looking at this from that standpoint, but from where we’re seated, we see a key US FED meeting coming up this month (scheduled for around the 17th or 18th September), and with July consumption having increased only 0.1%, a revision to 2nd quarter GDP of almost a 50% increase seems a little out of proportion (all things considered).
Little can be done about these data numbers except to take them with a grain of salt and use them to understand and decipher the fundamentals and then stick to those fundamentals. Right now though, everything continues to point to maintaining a well diversified and balanced approach. Although some regions and sectors are showing signs of strength, the global economy still remains rather fragile and we certainly can expect further volatility heading into the end of the year. We should also expect a lot of focus to be on the US FED with their upcoming meeting in mid September and so investors will want to maintain their balanced and diversified approach during this time.
For Austen Morris Associates’ investors – talk with your advisor about any repositioning to take advantage of markets at this time. For more information about Austen Morris Associates please visit our website.
Darren Cox
Co-Head of Portfolio Management
Austen Morris Associates Wealth Management & Investment Team
www.austenmorris.com
