The global economy is still growing strongly. Despite the rise in the number of Coronavirus cases following the spread of the Delta variant, the economic recovery is continuing. Due to the relatively high vaccination rates in the US, Europe and China, the likely return of occasional social-distancing measures as autumn approaches should have a less significant impact this year compared with the situation a year ago. The probable slowdown of growth rates starting from the third quarter should result more from less favourable base effects than from a major weakening of activity. This is also why business activity indices in the manufacturing sector fell slightly in August, both in Europe and the US, while nevertheless staying at levels synonymous with strong growth. In China, the policy of zero tolerance of new Coronavirus cases may entail stricter restrictions to keep the epidemic in check, which would have a somewhat greater economic impact. In Japan, the lack of visitors to the Tokyo Olympic Games has prevented the much hoped-for boost to structurally low domestic consumption.
Despite now less depressed comparison bases, inflation rates are continuing to climb. In the US, for instance, the headline inflation rate stayed unchanged at 5.4% in July compared with June. Inflation excluding food and energy fell from 4.5% to 4.3%. The personal consumption expenditure deflator excluding food and energy, which is the Federal Reserve's preferred price indicator, held up at 3.6%, the highest level seen since December 1991. In the euro zone, inflationary pressures are also starting to gather pace. From July to August, the headline inflation rate increased from 2.2% to 3.0%, marking a 10-year high. Excluding food and energy, it rose from 0.7% to 1.6%.
The US Federal Reserve's Federal Open Market Committee and the European Central Bank's Governing Council did not meet in August. At the traditional central bankers' symposium at Jackson Hole in the US, which was held in virtual form this year, the Chairman of the Federal Reserve, Jerome Powell, repeated his view that inflationary pressures would be temporary, justifying the maintaining of a highly accommodative monetary policy. That said, he confirmed expectations of a forthcoming reduction of asset purchases, which could begin at year-end or at the start of next year. As full employment is still far from being achieved, a tightening of interest rates is not on the cards.
After the fall in government bond yields to maturity during the last few months, despite the deterioration of inflation statistics, there wasn't much movement in the bond markets in August. The 10-year benchmark rate rose very slightly in most countries, from 1.22% to 1.31% in the US, from -0.46% to -0.38% in Germany, from -0.11% to -0.03% in France, from 0.62% to 0.71% in Italy and from 0.27% to 0.34% in Spain.
The stock markets gained further ground in August, as the MSCI All Country World Net Total Return Index denominated in euros ticked up by 3.0%. With the exception of a negligible 0.01% fall in May, the global equity index has risen every month since the US presidential election and the announcement of the imminent availability of vaccines against Coronavirus in November 2020. In the US, the three major indices continued to surge to record levels, as the S&P 500 and the Nasdaq ended the month on a record high. Over the full month of August, the S&P 500, the Stoxx Europe 600, the Topix in Japan and the MSCI Emerging Markets recorded respective monthly performances of 2.9% (in USD), 2.0% (in EUR), 3.1% (in JPY) and 2.4% (in USD). At sector level, technology was the highest performing sector, crowning its bounce-back over recent months with a place on the podium for performances since the start of the year, alongside finance and communication services. The consumption sector is still lagging a little, however, both over one month and since the start of January.
After the dollar appreciated during the first half, the euro/dollar exchange rate remained practically unchanged during the last two months, standing at 1.18 at the end of August. Precious metal trends were uneven. The price of gold was flat, ending the month at USD 1814 per ounce. Silver, on the other hand, continued to depreciate, as the price per ounce fell by 6.3% from USD 25.5 to USD 23.9.