Markets cool in August.
U.S. long-dated treasuries sold off
Long bond yields have steadily moved higher over the past few months. Although US inflation has fallen from around 9% to just above 3% over the last year, the yield on the 10-year to 30-year Treasuries continued to move up in August, reflecting an ongoing reassessment of the long-run neutral rate of interest, as the U.S. economy continues to prove resilient to higher rates.
Profit taking on strong quarterly earnings
Majority of companies beat consensus estimates in the second quarter earnings by a wide margin, as they were set at a very low bar prior to the start of the quarter. Given the strong market performance this year, valuations are on high end of the historical range and investors are already looking pass the weaker earnings in the near term and are banking on a rebound in earnings in the forward-looking earnings growth guidance.
Global growth expected to slow
Due to rising gas prices and base year effects, inflation may register higher levels in the near term, as large monthly declines from summer of 2022 no longer impact the 12-month inflation movement. However, inflation is expected to continue to go lower by year end, as rent and wage growth inflation are showing early signs of moderation.
