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Monthly analys August 2022

date

12 september 2022

#MarketingCommunication

The month of August brought more volatility to the global financial markets. Losses were prevalent, with every major developed market finishing in negative territory by around 4% for the month. In the USA, for example, August pushed the loss since the beginning of the year to over 17% for S&P500 and in Europe – to over 19% for the German DAX, both in own currency. In contrast, emerging markets, helped by a recovery in China’s market, posted a positive return in August – the Bulgarian financial market resonated with this sentiment and the local SOFIX index scored a solid 2,1% gain.

Hopes that inflation had peaked and that central banks would mellow their monetary policy were abandoned in August. Sky-rocketing inflation in Europe and tight labor conditions in the United States began to erode optimism over any slowdown in the monetary tightening. US Federal Reserve Chair Jerome Powell’s firmly communicated the FED’s position to stick to raising interest rates and to keeping them higher “until the job is done”. Thus, the S&P 500 continued its rise in early August but reversed course at midmonth, as the FED’s clear priority for fighting inflation over supporting economic growt triggered a sharp sell-off in the last days of the month. This theme was reinforced by the European Central Bank as officials reaffirmed their anti-inflation priority.

The perspective of high interest rates for longer provided support to the US Dollar, sending both the euro and the yen to lows not seen in more than 20 years. The strong dollar and global recessionary fears once again placed pressure on oil and commodity prices, which fell for a third consecutive month. Despite the drop in oil prices, energy was the only sector to post a positive return in August, as inventories remained low and price uncertainty caused by the Ukraine war supported the sector. Thus, energy was the strongest monthly performer with a 2.2% gain, while information technology was the weakest sector with a 6.3% decline. Defensive utility stocks also held up for the month thanks to their business stability and ability to pass along increased energy costs. By contrast, health care stocks fell, with renewed pressure on drug pricing, along with economically sensitive information technology stocks.

Most of the economic data published during the month continued to illustrate the slowing of the global economy. Inflation continued to rise in the Eurozone with annual consumer price index (CPI) inflation estimated to be up 9.1% in August – in the Baltic countries, Estonia, Latvia and Lithuania, it surpassed 20%! Industrial producer prices for June were up 35.8% in the Eurozone compared with June 2021. High energy prices are the major cause of these inflationary problems, and there are no prospects for price reduction amid disruptions of Russian gas supplies. At the end of the month Gazprom, Russia's state-owned gas supplier, shut down the “Nord Stream 1” pipeline again for three days, apparently for more repairs.

The Bulgarian stock market once again reacted differently from the global financial markets. Against the backdrop of pronounced declines abroad, the main Bulgarian market indices ended the month with slight gains – SOFIX even rose more than 2%. Among the local companies, the best performer was the energy holding Petrol AD, whose price rose over 55% for the month, and the worst – the fertilizer producer Neochim Ad, whose share price fell almost 12 percent.

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