Investment market update: August 2023

| Category: News

Globally, signs suggest the pace of inflation is slowing. However, businesses in some sectors are struggling and weighing on economies. Read on to discover some of the factors that affected investment markets in August 2023.

According to a Purchasing Managers’ Index (PMI) from JP Morgan, reports indicated that manufacturing in Asia, Europe and the US is contracting. New orders declined for the 13th consecutive month, which could have medium-term consequences for investment markets.

When reviewing your investments, remember to take a long-term view. Volatility is part of investing and, usually, sticking to your long-term strategy makes sense, rather than reacting to short-term movements.

If you have any questions about your investments or the current climate, please contact us.

UK

The UK economy beat forecasts to post growth of 0.2% between April and June 2023 to avoid stagnation.

Yet, some institutions, including consulting firm RSM UK, warn the UK could still slip into a recession next year. This concern is compounded by PMI data showing contraction in the manufacturing sector.

While slowing, the rate of inflation remains stubbornly high. It was 6.8% in the 12 months to July 2023.

Bank of England (BoE) governor Andrew Bailey said he expects inflation to fall to 5% in October. However, he added that high interest rates are likely to remain for at least two years.

The inflation figures led to the BoE increasing its base interest rate again. As of August 2023, it is 5.25% – a 15-year high.

The decision was met with criticism. Think tank IPPR warned the central bank was “tightening the screws too much, given the UK economy is weakening, the labour market is slow, and productivity is falling”.

The rising interest rates are placing particular pressure on mortgage holders.

At the start of the month, the interest rate of an average two-year fixed mortgage deal exceeded 6.5%, although rates started to fall by the end of August.

Unsurprisingly, rising interest rates have led to house prices falling. According to Nationwide, property prices fell by 3.8% in July 2023 when compared to a year earlier.

UK Finance also reported 7% more homeowners are now behind on their mortgage repayments when compared to the first quarter of 2023. The figures suggest landlords are struggling the most – the number of buy-to-let mortgages in arrears jumped by 28%.

As a result, house prices could fall further. Estate agent Knight Frank predicts prices will fall by 5% this year.

Demonstrating the difficulties businesses are facing too, beloved high street store Wilko fell into administration after rescue talks failed. It places more than 12,000 jobs at risk across the UK.

Europe

The eurozone is facing similar challenges to the UK.

PMI data shows manufacturing firms have cut prices at the quickest pace since 2009. In addition, new orders, employment, and production all fell in July at a faster pace than the previous month.

As the largest economy in Europe, Germany is often viewed as the stalwart of the eurozone economy. Yet research group Sentix warned the country is “becoming the sick man of Europe and is weighing heavily on the region”.

Findings from the Ifo Institute support this warning. A report suggests the number of German construction firms in financial difficulty doubled in July when compared to a month earlier. In addition, 19% of companies reported cancelled orders, against a long-run average of 3.1%, which could signal medium-term challenges.

There was some positive news for the eurozone economy – in June it boasted a large trade surplus.

According to Eurostat, sharply falling imports from Russia and China led to a trade surplus of €23 billion (£19.7 billion) in June. Just a year earlier the economic region recorded a trade deficit of €27.1 billion (£18 billion).

Early in August, the decision to impose a windfall tax on banks in Italy led to stocks tumbling before the government watered down the announcement.

Facing accusations that banks were reaping billions of euros in extra profits thanks to rising interest rates, the Italian government approved a 40% windfall tax on the profits of banks.

Analysts estimated the tax could mean banks would collectively have handed over more than €9 billion (£7.7 billion). The news sent bank shares tumbling – Intesa Sanpaolo, which is the largest bank in Italy, saw shares fall by 8.7%.

As stock values fell, the government backtracked and said lenders would pay no more than 0.1% of their assets in tax, which analysts estimate will be just a fifth of the sum initially forecast.

US

In an unexpected decision, credit rating agency Fitch downgraded US debt due to “erosion of governance”.

It led to all major US stock markets opening in the red after the announcement. The Nasdaq recorded the largest fall and was down by 1.86%.

The downgrade also had a knock-on effect on European shares. The FTSE 100 fell by 1.7%, and markets in Germany, Italy and France were similarly affected.

While lower than other economies, inflation accelerated in the 12 months to July to 3.2%. To stabilise prices, the US central bank hiked interest rates to 5.5% – the highest level in 22 years.

Data could indicate that business optimism is waning. Figures from the Bureau of Labor Statistics show firms added 187,000 jobs to the economy, which fell short of expectations. In 2022, the average monthly gain was 400,000.

Please note:

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Testimonials

Blue Ocean has always given me the help and advice that I feel protects my family’s investments. Not only have we used Blue Ocean for more than 20 years, but the team have always made us feel welcome. Always at the end of the phone for any advice we may need. Many thanks!

Russell Paul David

Rochester, Kent

A client since 2001

Professional and reactive to any questions regarding your investment.

Michael Gould

Kent

A client since 2011

Knowledgeable, approachable and always happy to discuss my issues.

Michael Southall

London

A client since 2018

Very good, friendly advice from a good team.

Stephen Williams

Kent

A client since 2010

Having been a client of Blue Ocean for the past 3-4 years, I can honestly say there is nobody I trust more with regards to my financial future than John and the team. Too good to be true? Not with Blue Ocean!

Liam Ryan

Essex

A client since 2016

I moved my investments to Blue Ocean in 2014. The advice I have received has been more professional and my investments have performed better. The staff are polite and always quick to respond to queries.

Lee Menzies

East Sussex

A client since 2014

I find them very easy to deal with. Extremely knowledgeable and with no pressure.

George Howell

Bexleyheath

A client since 2016

We have used John Doyle and Blue Ocean for over 20 years as our financial adviser for everything from mortgages, pensions, income protection, trusts and investments. His advice has always been realistic, reliable and no-nonsense. He has always understood our requirements and has advised accordingly.

Michaela Franklin

Kent

A client since 1999

Having the benefits of sound financial advice from Blue Ocean for over 20 years, I would recommend them without hesitation.

Andrew Martin

Medway, Kent

A client since 1999

I have been advised by Blue Ocean for the past 21 years, and have always found their service sound, helpful and supportive.

Louise Bober

Kent

A client since 1999

Working with Blue Ocean has enabled myself and my wife to invest our pension savings with the confidence that they are being managed by a professional team of qualified financial advisers. They have been very supportive and responsive when we've requested a detailed analysis of our investment performance and the outcome has been positive in terms of the expected returns. I have recommended family and friends to Blue Ocean and they have been equally very satisfied with the service.

Glen Ridout

Kent

A client since 2011

I love Blue Ocean Hartley! So very helpful and fantastic staff.

Christine Bryant

Dartford, Kent

A client since 2009

I have received honest advice in a relaxed, friendly environment with my personal circumstances paramount.

Janice Hill

Kent

A client since 2009

Honest, well versed, ‘personal touch’ business out to make sure everyone has satisfaction.

John Townsend

Hearn Bay, Kent

A client since 2017

Since we have used John and the team over the years our investments have gone from strength to strength. We’re very happy with the work they have done for us. I am now in a position to retire with no money worries.

Keith Yeates

Kent

A client since 2008

Blue Ocean resolved a difficult situation in a very satisfactory way. The whole staff are extremely friendly and helpful and it was very cost-effective.

Richard Mersh

Kent

A client since 2017

Bespoke service... friendly, helpful staff.

Jane Stevens

Dartford, Kent

A client since 2017

I have known John for over 20 years and have always been satisfied with his integrity, knowledge and reliability. I recommend him to business and family contacts without reserve.

Paul Richardson

Surrey

A client since 2002

Over the past 18 years, I have received very reassuring advice on my investments and always been treated in a friendly but professional manner.

Jacqueline Prosser

Surrey

A client since 2001

We would have no problem whatsoever in recommending the services of Blue Ocean for sound financial appreciation and advice, all handled in a friendly, convivial and concerned manner. Blue Ocean are always looking at how they can go that extra mile for their clients. This is a rare positive commodity in any business environment in today's world. The financial advice is always considered and simply explained in terms of what if and if you invested here etc. There is no pressure put on me to invest in high-risk return possibilities and at all stages the advice given is tailored to the perceived situation of their clients.

Barry William Ednie

Tonbridge, Kent

A client since 2013