August 2024
Global economies are experiencing synchronised stimulus. In June the European Central Bank reduced rates for the first time since before the Covid-19 pandemic. In July policymakers at the Bank of England voted to cut rates. Other central banks, ranging from those in Canada and Chile to Denmark, are also in on the action with the U.S. expected to follow. In the second quarter of this year the combined real GDP of the OECD grew by 1.8% year on year, the fastest since the end of lockdowns. Unemployment in the OECD remains around 5%. It has edged up from earlier in the year, but job growth remains reasonably strong. This likely reflects the fact that modern economies are less sensitive to interest-rate changes, owing to a decline in capital-intensive industries such as housebuilding and manufacturing.1 In August we maintained the FGAM U.S. twelve-month forward outlook to reflect our view for Growth (U.S. Real GDP growth greater than 2.5%) over the next twelve- month period, in response to the strong U.S. annualized 3.0% growth.
China’s annual inflation rate climbed to 0.5% in July,2 while the surveyed unemployment rate increased to 5.2% from 5% in each of the previous three months.3 China’s trade surplus widened as exports rose 7.0% year-on-year, while imports rose 7.2%, rebounding from a 2.3% fall in the previous month.4 The Euro Area GDP expanded 0.3% in Q2 2024. Key economies were France, Italy, and Spain. Germany, the largest economy, contracted 0.1%, as the industrial sector continues to be strained by high interest rates.5 The annual inflation rate in the Euro Area rose to 2.6% in July, followed by a decline to 2.2% in August.6 The unemployment rate in the Euro Area decreased to 6.4% in July.7
Real gross domestic product (GDP) in the U.S. grew at an annual rate of 3.0% in the second quarter of 2024, up from 1.4% in the first quarter.8 The annual inflation rate in the U.S. slowed for a fourth consecutive month to 2.9% in July 2024,9 while the unemployment rate rose to 4.3% from 4.1% in the previous month.10 The Canadian economy advanced by 0.5% in the second quarter of 2024, marking its second consecutive quarter of expansion.11 Canada recorded a trade surplus of CAD 0.64 billion in June, the first since February. Exports surged by 5.5% while imports rose by 1.9%.12 The core inflation rate in Canada rose 0.3% from a month earlier in July,13 while the unemployment rate was 6.4%.14
The U.S. market witnessed a rotation towards smaller-cap stocks in July. The S&P 500 was up 1.2% while the S&P Mid-Cap 400 was up 5.8% and the S&P Small-Cap 600 was up 10.8% in July. Canadian equities finished July on the upside. The S&P/TSX Composite increased 5.9%. The S&P Europe 350 started the second half on the front foot, gaining 1.3%, in July. 11 of 16 countries contributed positively to the pan-European equity returns, with the United Kingdom the biggest positive contributor with +0.8%. At the opposite end of the spectrum, the Netherlands subtracted 0.5% from the S&P Europe 350’s return. Pan Asia equities marched higher in July, with the S&P Pan Asia BMI rising 2.4%.
In August we maintained the asset allocation from July. This reflects our expectation of a broader recovery across all market capitalizations as the U.S. economy strengthens. We continue to maintain short duration U.S. fixed income exposure as we are in early growth with interest rates in the U.S. holding at current levels. Gold is held across all models as a long-term strategic asset as it will continue to benefit our portfolio models at this transition point from Stagnation to Growth.
Fiscal policy and electoral cycles will continue to dominate our outlook. Our twelve- month forward outlook will continue to monitor the size and scale of the U.S. budget deficit, coupled with the substantial Treasury debt issuance required to address it. Our approach to portfolio management is nimble, opportunistic, and deliberate in identifying asset classes that are best placed to generate returns in a new world order. Our focus is on protecting portfolios from downside risk, and we believe that our investment process is working to achieve that goal.
Deborah Frame, President and CIO
Drew Millard, Portfolio Manager
1 The Economist. “Inflation is down and a recession is unlikely.” August 3, 2024.
2 Trading Economics. China Inflation. August 9, 2024.
3 Trading Economics. China Unemployment. August 15, 2024.
4 Trading Economics. China Trade. August 7, 2024.
5 Trading Economics. Europe GDP. August 14, 2024.
6 Trading Economics. Europe Inflation. August 20, 2024.
7 Trading Economics. Europe Unemployment. August 30, 2024.
8 Trading Economics. U.S. GDP. August 29, 2024.
9 Trading Economics. U.S. Inflation. August 14, 2024.
10 Trading Economics. U.S. Unemployment. August 2, 2024.
11 Trading Economics. Canada GDP. August 30, 2024.
12 Trading Economics. Canada Trade. August 6, 2024.
13 Trading Economics. Canada Inflation. August 20, 2024.
14 Trading Economics. Canada Unemployment. August 9, 2024.
Index return data from Bloomberg and S&P Dow Jones Indices Index Dashboard: U.S., Canada, Europe, Asia, Fixed Income. July 31, 2024. Index performance is based on total returns and expressed in the local currency of the index.
