August started off shaky with global stock indexes dropping early in the month. However, we saw signs of recovery in the back half of August as some major indices like the FTSE and S&P booked gains of 1-2% in the last week. The downturn was driven by ongoing economic uncertainty – key factors being persisting high inflation, additional interest rate hikes, and recession fears.
Markets did react to the notable news of Fitch downgrading the US credit rating to AA+ from the top AAA rating. Fitch cited concerns around continuously rising government deficits and debt levels as well as potential for slowing growth. However, the reaction was quite muted compared to when S&P downgraded the US back in 2011. After Fitch’s move, the Nasdaq and Dow only dropped around 2%, much less than the significant selloffs seen in 2011.
On the economic data front, UK inflation remains painfully high, sticking above 9% in August and continuing to strain British consumers. US inflation ticked down slightly but also stays elevated near 8%.
Hawkish commentary from Fed Chair Powell and ECB President Lagarde at the Jackson Hole summit signalled central banks remain committed to taming inflation through ongoing rate hikes, even if it results in below-trend economic growth.
Shifting to capital markets activity, London has seen a steady stream of IPO and follow-on deals, with total capital raised year-to-date hitting £12 billion. The largest deals were two raises from London Stock Exchange Group totalling nearly £5 billion. There were two new entrants to the market:
- CAB Payments, an Irish financial services firm, which raised £291 million and
- Admiral Acquisition, a blank check company formed for potential M&A, which raised £440 million.
In terms of flows, UK investors continue seeking safety in bonds while pulling out of equities. Looking wider, the US dominated global equity capital raising, while China has lagged remarkably with only £9 billion in IPOs so far in 2023.
In summary, equities seem directionless for now until we get more clarity on inflation and central bank policy outlooks. There’s potential for more upside if inflation keeps cooling, but risks like recession and geopolitics persist. Investors should tread carefully and maintain some dry powder ready to deploy in case any compelling dips emerge.
This article summarises key ECM and M&A activity data provided by the London Stock Exchange. The original data can be seen here.