Economic overview and summary of our asset allocation decisions
August was generally a quiet month, with seasonally low volatility and equity markets moving in a narrow range for small positive returns. Notably the UK’s FTSE 250 continued its rebound as investors brushed off Brexit concerns, while European banks also staged a partial recovery.
- In fixed income markets, gilts and sterling corporate bonds were the standout performers, with the latest policy announcements from the Bank of England (BoE) leading to a sharp contraction in spreads while yields tumbled. In commodities oil prices were volatile, while precious metals lost ground
- The main event in August was the BoE’s much anticipated policy intervention following June’s Brexit vote. Facing a deteriorating economic outlook, the BoE cut interest rates from 0.5% to 0.25%
- The BoE also introduced a Term Funding Scheme (TFS), which aims to help ensure this rate cut is passed through to the real economy, and announced the resumption of its quantitative easing (QE) programme, which was extended to include £10 billion worth of corporate bond purchases over an 18-month period, starting in September
- Elsewhere ambiguous ‘Fed speak’ highlighted potential splits in the voting intentions of committee members ahead of its next meeting in September. The apparent strength of the US labour market led Chairwomen Janet Yellen to make hawkish comments during her appearance at the Jackson Hole Conference.
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