August Market Commentary

July was a dramatic month. Greece held a referendum and emphatically rejected the austerity package offered by its creditors. Motor-cycle riding Finance Minister Yanis Varoufakis resigned, calling the creditors “terrorists”, and the new finance minister, Euclid Tsakalotos, was seen going into yet another final, final crisis meeting with his negotiating position scribbled on hotel notepaper. In the event a bailout was finally agreed – Agreekment averts Grexit according to the headlines – more or less along the lines of the bailout that had been rejected in the referendum.

Meanwhile the Chinese stock market was sliding dramatically, despite desperate efforts by the regulators to halt the falls. The falls reflected fears that the true picture of the Chinese economy might not be quite as rosy as the official line suggested and by the end of the month the Shanghai Composite index was down 14%.

Amid all this excitement it was easy to forget that Chancellor of the Exchequer George Osborne had delivered his second Budget of the year on July 8th.

There were hints of interest rate rises in both the UK and the US, whilst world stock markets generally had a positive month.


George Osborne looked relaxed and confident as he rose to deliver his Budget speech. It would, he said, be “A Budget for working people, as Britain looks to create a higher wage, lower tax, lower welfare country.”

“Our long term economic plan is working,” he declared, “But the greatest mistake this country could make would be to think that all our problems are solved. You only have to look at the crisis unfolding in Greece to realise that if a country is not in control of its borrowing, the borrowing takes control of the country.”

It was a triumphalist speech from George Osborne and it was easy to see him as the frontrunner to succeed David Cameron. “Promise made, promise delivered,” he declared on any number of occasions, as he delivered tax cuts for Middle England and found the promised £12bn of welfare savings.

The other theme running through the speech was productivity: as we have reported previously in this monthly report, Osborne is determined that the UK will close the ‘productivity gap’ with countries like Germany and the US. His vision of the UK as a “high earnings, low tax, low welfare” country was plain to see – and was loudly applauded by his backbenchers.

Generally, the economic news in the UK reflected the Chancellor’s optimism. It was confirmed that UK economic growth for Q2 of 2015 had jumped to 0.7%, helped by a big increase in oil and gas production. This meant that economic output was 2.6% ahead of the same period in 2014.

The CBI said that it expected ‘solid growth’ for the rest of the year, although it did reflect the Chancellor’s concerns over skills and productivity, with half of the firms surveyed saying that they were struggling to recruit staff with the right skills.

That didn’t seem to be a worry in the UK car industry, with the first half of the year seeing a record for sales of new cars, and UK car production reaching a seven year high.

The one negative point was a rise in unemployment for the first time in two years, with figures for March to May confirming a 15,000 rise as the rate rose to 5.6%. Inflation went the other way, dropping to 0% thanks to falls in the price of food and clothing.

As reported above, Bank of England Governor Mark Carney hinted at an interest rate rise at the “turn of the year” with both the pound and economic growth strengthening.

Following June’s big fall, the FTSE 100 index of leading shares rebounded slightly in July, rising by 3% to finish the month at 6,696 – where it is now 2% higher than the level at which it started the year.


Will this be the last lengthy report on Greece? You would like to think so, with Eurozone leaders finally offering Greece a third bailout – potentially worth up to €86bn over three years – after a marathon session of talks lasting 17 hours.

The Greek parliament voted to accept the deal – pretty much the same one that had been rejected in the referendum – and riots promptly broke out in Athens. Meanwhile the world of social media was busily condemning a ‘Teutonic coup.’

Writing in the comments section of the Guardian a reader simply put: you cannot export olives and import BMWs.

But for now Greece has its bailout – and faces years of official austerity. It certainly appears that the Greek stock market shares these fears: when it re-opened on Monday August 3rd (having been closed for five weeks) it promptly fell by more than 20% to just above the 600 level. Bank shares were hit even harder, falling by up to 30%.

Other European stock markets responded well to the bailout for Greece: Germany’s index rose 3% to close the month at 11,309 whilst the French index was up 6% to 5,083.

In economic news it was business as usual: German inflation fell to a five month low of 0.2% in July, whilst unemployment remained steady at 4.7% – the lowest level since 1981. Figures for May confirmed another rise in Germany’s trade surplus, up to €19.6bn as exports rose by 4%. This was reflected in the wider Eurozone, with economic activity increasing at its fastest rate for four years in June, boosted by higher spending by both consumers and businesses.


As always – it seems – there were mixed economic messages coming out of the US in July. Factory activity was up slightly, but there was a fall in consumer confidence. New house sales were also at their lowest level for seven months. However, figures released for Q2 confirmed that the economy had grown by 2.3% in the three months to June, well up on the 0.6% recorded in the first quarter.

Clearly Federal Reserve Chair Janet Yellen saw signs of confidence in the economy, as she confirmed that US interest rates were likely to rise in 2015.

In company news, Google saw its shares leap by 16% as it confirmed a 17% increase in profits for the three months to June. Apple shares went in the opposite direction – despite a rise in their Q3 profits – due to worries about a slowdown in the Chinese economy.

Starbucks reported record sales and Amazon sales were also “better than expected:” George Osborne will no doubt be hoping that both companies’ tax payments to the UK treasury follow suit…
The mixed economic news saw the Dow Jones index close July almost unchanged from the level at which it had started the month: it was up just 70 points to finish at 17,690.

Far East

It’s impossible to start this section anywhere other than China, where the stock market had a torrid month, falling by 14% to finish the month at 3,664 from a starting level of 4,278. The regulators stepped in and firms said they would stop trading their shares in a bid to halt the slide, but for the first time the Chinese Insurance Regulatory Commission was forced to admit that there was genuine ‘panic selling’ underway.

Chinese economic growth was reported at 7% for the second quarter of the year, beating expectations of 6.8% growth – and in some ways this contributed to the problems on the stock market. There are growing suspicions that official figures are not being reported accurately, and that the health of the Chinese economy might not be all it should be. For example, factory activity was reported to be at its lowest level for 15 months.

Inevitably the Hong Kong stock market was dragged down by the falls in China. The market there slipped back by 6% to finish July at 24,636. The South Korean market was also down as the economy was badly hit by a severe outbreak of MERS (Middle East Respiratory Syndrome): the index fell by 2% to 2,030.

There was better news in Japan, where the Nikkei Dow was up 2% to 20,585 with the IMF urging Japan to ‘reload Abenomics’ (the financial stimulus package) and not to rely on the weak Yen for a continuing recovery.

Emerging Markets

Let’s get the bad news out of the way first: it appears that the long-running dispute between Russia and Ukraine over gas supplies is back on, with Ukraine suspending purchases. That’s a reasonable decision to take in July, but you suspect they may have to re-consider when winter arrives. With Russia having cut off gas supplies to Ukraine in 2014 we may be set for escalating tension in the area as the winter approaches. None of this bothered the Russian stock market, however, which was up 1% in July to 1,669.

There was a similar rise in India as the market ended the month at 28,115. There was also good news generally for the Indian economy as it was reported that India is now the world’s fourth-largest hub for start-up businesses. With the country expected to overtake China as the world’s most populous country by 2028 – and with 240m Indians now having internet access – this trend is certain to continue.

No such good news in Brazil, where the market fell by 4% in July to 50,865 – small wonder with both unemployment and inflation continuing to rise, and the Central Bank raising the key interest rate in the country to 14.25%.

And finally…

In between the Greek crisis and plunging Chinese shares July has been a month that was conspicuously light on humour – so instead let’s take a glimpse into the future. Will we be adding an ‘Africa’ section to this monthly report in a couple of years’ time? A report on the BBC website highlighted the rapidly expanding – and huge potential of – the African market for mobile games and apps. It’s still miniscule by American standards but over the coming years the games and apps markets – like many African markets – is expected to see consistent double-digit growth. So stay tuned for an extra section to be added to the monthly report around 2017…

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