In international markets, the story was near identical, with US yields having increased by a similar amount to their Australian counterparts, as inflation continues to dominate the global discussion. This resulted in the Bloomberg Global Aggregate Index (AUD Hedged) returning -2.2% throughout August, with currency fluctuations resulting in the unhedged variant returning -2.2%.

_{Economic News}

Australia

The RBA again raised rates by 50 bps in August, bringing the cash rate to 1.85% in a bid to bring inflation down and to create a more sustainable demand and supply. The unemployment rate dropped to 3.4% in July, below the expected 3.5%. Australian consumers appear to be buying their way out of a possible recession with retail sales increasing 1.3% in July, with the annual rate rising 16.5%. 

The Westpac-Melbourne Institute Index of Consumer Sentiment fell 3% to 81.2 in August, down 22.9% since November 2021. The NAB Business Survey for July rose 7 points to 8, as businesses reported new record levels of capacity utilisation, cost growth and price rises.

The S&P Global Composite PMI fell to 49.8 in August, contracting for the first time in seven months amid a decline in the service sector and waker manufacturing output growth.

The trade surplus narrowed to $8.73 billion in July, far below forecasts of $14.5 billion surplus, amid a sharp drop in sales of metal ores and minerals.

Global

Global Covid-19 surpassed 599 million cases and 12.4 billion vaccine doses administered as at the end of July.

Drought was declared across the globe, from the Horn of Africa to China and England, as climate change continues unabated. More than 18 million people in Ethiopia, Somalia and Kenya face severe hunger, after four consecutive years of lower-than-average rainfall.

Prolonged periods of hot weather and heatwaves are taking their toll on livelihoods in more developed countries as wildfires have scorched swathes of land and crop failure is predicted.

In the US, inflation came in at 0% in July, below the expected 0.2%, with the annual rate slowing more than expected to 8.5%.

Non-farm payrolls added 315,000 jobs in August, ahead of the market forecast 300,000, with the. The unemployment rate rose to 3.7% in August. Personal incomes grew 0.2% in July, well below the anticipated 0.6%.

Consumer sentiment rose to 58.2 in August, well ahead of the anticipated 55.2. Retail sales were flat at 0% in July below forecasts of 0.1%, with the annual rate growing 10.3%.

The S&P Global Composite PMI fell to 45.0in August, the second successive monthly decrease in private sector business activity since May 2020. PPI unexpectedly fell 0.5% in July, below the forecasted +0.2%, as the annual rate slowed to 9.8%.

The trade deficit narrowed by US$10.2 billion to a nine-month low of US$70.7billion in July and broadly in line with market forecasts.

The European Central Bank raised interest rates by 75bps in August, above expectations of a 50bp increase, bringing the policy rate to 1.25%. The eurozone’s big four economies – Germany, France, Italy and Spain – have all had their growth forecasts for 2023 downgraded by the International Monetary Fund, as a combination of the war and higher interest rates put a brake on activity.

The annual inflation rate in the Euro area rose to a new high of 9.1% in August, above the anticipated 9.0% as energy cost remains elevated and food prices continue to accelerate.

Consumer confidence increased to -24.9 in August which is in line with expectations. Retail sales rose0.3% in July, rebounding from the revised 1% drop in June but slightly below forecasts of 0.4% Annual retail sales fell 0.9% in July, below market expectations of -0.7%.

Unemployment came in at 6.6%, in line with market expectations. The S&P Global Composite PMI fell to 48.9 in August signalling the biggest fall in private sector activity since February 2021.

PPI rose 4.0% in July, well above forecasts, while the annual rate rose to a fresh record high of 37.9%, much higher than the forecast 35.8%.

In the UK, inflation rose 0.6% in July, above the 0.4% expected, with the annual inflation rate rising to 10.1%.

The Bank of England forecasts inflation will peak above 13% in the next quarter after a fresh increase in energy costs, with the economy likely to fall into a lengthy recession.

The unemployment rate held at 3.8% in June, in line with expectations%. Consumer confidence dropped to a record low of -44 in August reflecting acute concerns about the soaring cost of living. Retail sales came in 0.3% higher in July, against expectations of -0.2%, bringing the annual rate to -3.3%.

The PMI composite index came in at 49.6 in August, below expectations and down on the 52.5 July result.

PPI dropped 1.6% in Julye with the annual rate to rising 17.1%.

China’s inflation rate rose to 2.7% in July, below the market forecast of 2.9% and largely due to a surge in food prices.

The unemployment rate was lower in July at 5.4%, within the government target range, and reflects the amid further easing of COVID restrictions.

The Caixin Composite PMI fell to 53in August due to a wave of COVID infections and energy shortages following a record breaking drought. A drought has caused some rivers to dry up, affecting hydropower, halting shipping, and forcing major companies to suspend operations.

Retails sales grew by 0.3% in July, with the annual rate growing by 2.7%, well below the market estimate of 5%.

China's trade surplus unexpectedly dropped to a three-month low of US$ 79.39 billion in August, far below market forecasts of US$ 92.7 billion, due to a softer rise in exports as foreign demand eased as inflation spiked in many countries.

In Japan, GDP grew by 0.9% in the second quarter, above expectations and 0.5% growth in the first quarter whilst the annual rate grew by 1.6%. Inflation came in at 0.4% in July, up from 0.1% in June, bringing the annual rate to 2.6%. The unemployment rate remained at 2.6% for the third straight month in July 2022, matching forecasts.

The consumer confidence index in Japan increased to a three-month high of 30.2 in August, amid further improvement in the COVID-19 situation with the government already lifting all pandemic restrictions.

Retail sales Retail Sales in Japan increased 0.80 percent% in July, with the annual rate rising 2.4%, above market expectations of 1.9%

The Composite PMI was at 49.4 in August, compared This was the first drop in private sector activity since February, amid a sharp surge in COVID cases with both manufacturing and service sectors weakening.

Currencies

The Australian Dollar was mixed over the month of August, finishing 0.3% stronger in trade-weighted terms.

Continued hawkish commentary out of the US Federal Reserve and European Central Bank saw foreign exchange traders pile into the USD & EUR as they ramped up their bets on hefty interest rate rises.

The Pound Sterling suffered its sharpest monthly fall against the Australian Dollar since March 2022 as political uncertainty and a historic cost-of-living crisis weighed heavily.

 The Japanese Yen continued to weaken with some now arguing Government intervention is required to support the local currency.

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