August was another relatively volatile month, in which investor sentiment was adversely affected by escalating violence in the Middle East, mounting concerns over the activities of the Islamic State militant group and continuing conflict between Russia and Ukraine. During the month, Russia announced embargoes on food imports from the US, the European Union, Canada, Australia and Norway.
Economic growth in the eurozone stagnated during the second quarter of 2014 compared with the first three months of the year, fuelling speculation policymakers will be forced to initiate fresh stimulus measures to boost the region’s fragile economy. In particular, Italy’s economy slipped back into recession, France’s economic growth remained flat and Germany’s economy contracted at a quarterly rate of 0.2%. Nevertheless, investors took heart from European Central Bank president Mario Draghi’s reassurance that policymakers remain “ready to adjust (their) policy stance” if necessary. Germany’s Dax index rose 0.7% during August while France’s CAC 40 index posted an increase of 3.2%.
In the UK, August saw Bank of England policymakers maintain interest rates at 0.5% for another month – although, two members of the central bank’s Monetary Policy Committee were in favour of increasing rates by 0.25 percentage points. This was the first time since July 2011 that policymakers did not vote unanimously over monetary policy and the announcement triggered renewed speculation an interest-rate rise might come sooner than expected. The FTSE 100 index rose 1.3% over August as a whole.
US share prices generally rose over August, driven higher by positive economic data and confidence monetary policy is likely to remain supportive. The Dow Jones Industrial Average index rose 3.2% over the month. The US economy grew more rapidly during the second quarter than previously calculated, lifted by stronger exports and a rise in personal and public expenditure. Meanwhile, at the Federal Reserve’s annual symposium at Jackson Hole, chair Janet Yellen reiterated that US interest rates would remain low until the country’s labour market improves.
Japan’s economy shrank at an annualised rate of 6.8% during the second quarter although a contraction had been widely expected following a sharp rise in the country’s consumption tax that took effect in April. The benchmark Nikkei 225 index fell 1.3% during August. More positively, Japanese exports posted their first rise for three months during July, rising at an annualised rate of 3.9%, while retail sales showed signs of improvement.