As we move into the Autumn months, US earnings season, the outlook for monetary policy and political uncertainty resulted in a volatile, but positive, August in financial markets. Over the month, the focus on quality, actively managed assets within the OBI Volatility Managed portfolios, particularly in Asian equities, drove positive performance, whilst a focus on well positioned, income yielding companies held lift the Long Hold Income portfolios.
Interest rate expectations have been a key driver of sentiment, particularly in the US as Federal Reserve Chair Jerome Powell delivered a more dovish than expected speech at the annual Jackson Whole Economic Symposium, fuelling bets that the Fed will cut rates in September. Further supporting risk appetite were US earnings, as reports for Q2 wrap up, broadly positive results relative to expectations have supported sentiment, as 81% of the US large cap index reported a positive surprise in earnings, albeit we have seen some tariff uncertainty creep into forward guidance for the coming quarter.
Political uncertainty Drives Bond Market Volatility
With 26th November now marked in the diary as the date for Chancellor Rachel Reeves’ Autumn Budget, movements in UK bond markets over the month have reflected a lack of confidence towards the Chancellor’s plans to shrink the fiscal deficit, as UK gilt yields rose sharply. In the face of rising borrowing costs and slow economic growth, estimates show the Chancellor will need to raise approximately £35 Billion, posing a challenging environment to a government who vowed not to raise taxes on working people. As always, we expect to see speculation over policy in the run up to the later-than-usual budget and expectations are for Rachel Reeves to set out future growth plans in the lead up to 26th November, although the Chancellor will need to be mindful of not spooking bond markets further.
Political uncertainty has also been a key theme in France over the month. Facing a public debt of 114% of GDP (€3.3 Trillion), French Prime Minister François Bayrou is now facing a vote of confidence later this month, which he called to secure the National Assembly’s support for his €44 billion budget savings plan. The plan includes removing two public holidays alongside sharp austerity measures to shore up the country’s finances, although political opposition have vowed to reject measures. Uncertainty over the National Assembly’s future, and alongside recessionary fears have fuelled volatility across French markets, although economists note that contagion risk to sentiment across other European markets remains relatively low.
Geopolitical Tensions in Focus
Geopolitical tensions have returned to the spotlight in August, as President Trump has been vocal in criticising India’s purchases of Russian oil, as he applied a steep 50% tariff on Indian imports, sparking a rise in diplomatic tensions. In addition, Indian, China and Russian leaders have all made efforts to strengthen ties with one another in a series of summits, whilst Vladimir Putin and Kim Jong Un were among guests to Xi Jinping’s Victory Day military parade that featured a display of the Chinese Military’s arsenal.
Earlier in the month, President Trump and President Putin met to discuss the ongoing war in Ukraine. Ahead of the meeting, Trump expressed his main goal was a ceasefire, however coming out of discussions with President Putin, Trump pivoted and stated that a ceasefire wasn’t critical and in further statements, the US President noted that Zelensky could end the war with Russia by conceding Crimea and NATO membership ambitions. Since the meeting, discussions between the US and Ukrainian presidents have been ongoing, yet momentum on brokering a ceasefire has stalled in recent weeks with the US President continuing to voice concerns over the conflict. Ongoing fragmentation of global relations, and a renewed sense of an “Alternative World Order” have driven gold prices to record highs over the month, as support for the US dollar fades.
OCM Suite Performance
Despite volatile market conditions throughout August, the OCM portfolio suites have been aided by a focus on actively managed, quality assets which have been able to offset headwinds in some domestic European and UK smaller companies. As we move towards the end of the year, elevated levels of cash within the OBI portfolios are expected to help manage volatility during this period of near-term uncertainty. At present, our elevated cash levels provide stability alongside the opportunity to redeploy into opportunities as they present themselves.
Past performance cannot be used as a guide to future performance and the value of your investment will fall as well as rise in value. You may not get back all your investment and the final value of your investment will depend on the performance of your portfolio. The actual performance of an individual client’s portfolio may differ due to different funds being used and being restricted in relation to certain asset allocations. Performance figures quoted include fund manager charges but exclude adviser, discretionary, custodian and switch charges. Unless stated, income is reinvested into the portfolio. The information contained in in this document is for information purposes only. It does not constitute advice or a recommendation or an offer or solicitation for investment. OCM Wealth Management Limited is authorised and regulated by the Financial Conduct Authority (FCA Registration No: 418826) OCM Asset Management is a trading name of OCM Wealth Management Limited
