Executive Summary

Global financial markets experienced an exceptionally volatile August 2024. The month began with a rapid sell-off across equities, currencies and other risk assets as weaker US employment data intensified concern that the Federal Reserve had maintained restrictive monetary policy for too long. These fears coincided with an abrupt appreciation of the Japanese yen, forcing investors to unwind leveraged positions financed through low-cost yen borrowing.

Japanese equities experienced the most severe initial decline. The Nikkei 225 fell by more than 12% on 5 August, recording its largest one-day points loss and its sharpest percentage decline since 1987. European and US markets also weakened, while measures of implied volatility rose dramatically.

The disruption proved temporary rather than the beginning of a sustained financial crisis. Economic data released later in the month reduced concern about an imminent US recession, while improving inflation strengthened confidence that the Federal Reserve could begin reducing interest rates in September.

Federal Reserve Chair Jerome Powell delivered a notably dovish speech at the Jackson Hole Economic Symposium. He stated that the time had come for policy to adjust and emphasised that the central bank did not seek or welcome further cooling in labour-market conditions.

US equities recovered almost all of their early losses. The S&P 500 finished August higher, while the Dow Jones Industrial Average reached a record closing level. The Nasdaq also recovered substantially, although technology and semiconductor shares remained more volatile than defensive sectors.

The Bank of England reduced Bank Rate from 5.25% to 5.00% by a narrow 5–4 vote. The decision represented its first reduction since March 2020 and reflected progress in reducing inflation, although policymakers continued to warn that domestic wage and services pressure remained persistent.

The European Central Bank did not hold a policy meeting during August, but moderating inflation and weak regional activity increased expectations of another reduction in September. European equities recovered from the early sell-off, although Germany's manufacturing weakness and French political uncertainty continued to affect confidence.

Chinese markets remained under pressure as property weakness, subdued household demand and disappointing economic indicators outweighed incremental policy support. Industrial commodities generally weakened as investors reduced expectations for Chinese demand.

Government bonds performed strongly as markets anticipated a broader global easing cycle. US Treasury yields declined, the yield curve moved closer to normalisation and the dollar weakened against several major currencies.

Gold reached additional record levels, supported by lower bond yields, expectations of Federal Reserve easing and geopolitical uncertainty. Oil prices were volatile but ended the month under pressure as demand concerns outweighed disruption risks.

Key Themes During August

• A sharp global sell-off occurred during the opening days of the month.
• The unwinding of yen-funded carry trades amplified market volatility.
• US recession concerns increased before moderating later in August.
• Federal Reserve Chair Jerome Powell signalled that rate cuts were approaching.
• The Bank of England reduced Bank Rate to 5.00%.
• Government bonds rallied as global easing expectations increased.
• Defensive equity sectors outperformed during periods of uncertainty.
• Gold reached further record highs.
• Chinese economic and property-market weakness continued.
• Private-market investors focused increasingly on refinancing and downside protection.

Global Economic Overview

August produced an abrupt reassessment of the balance between inflation and economic growth. Investors entered the month expecting a gradual US slowdown and a modest September rate cut. Weak employment data temporarily created concern that the economy might instead be moving towards a more severe contraction.

United States

The July employment report showed substantially weaker job creation than expected, while the unemployment rate increased to 4.3%. The rise activated the Sahm Rule recession indicator, which identifies rapid increases in unemployment relative to the previous twelve-month low.

The indicator intensified market concern, although its creator cautioned that unusual labour-force developments could reduce its reliability during the post-pandemic period. Other economic evidence remained more consistent with moderation than immediate recession.

Retail spending remained resilient, service-sector activity continued to expand and weekly unemployment claims did not show a sustained surge. These releases helped restore confidence after the initial market decline.

US Inflation

Inflation continued to moderate. Annual consumer-price inflation fell below 3%, while core inflation also moved lower. Producer prices were comparatively subdued, supporting confidence that pipeline pressure was easing.

The combination of lower inflation and a less overheated labour market strengthened the case for monetary easing. Debate shifted from whether the Federal Reserve would reduce rates in September to whether the first move would be 0.25 or 0.50 percentage points.

Jackson Hole

Jerome Powell used his Jackson Hole address to confirm a change in policy direction. He noted that inflation had declined significantly, the labour market was no longer overheated and the balance of risks facing the Federal Reserve's employment and inflation mandates had changed.

His comments suggested that policymakers were prepared to begin easing in September. However, Powell did not specify the size of the first reduction, leaving the decision dependent upon forthcoming employment and inflation data.

Eurozone

Eurozone growth remained weak and uneven. Service activity provided support, while manufacturing continued to contract, particularly in Germany.

Inflation declined towards the European Central Bank's target. This increased expectations that the ECB would reduce its deposit rate again in September following the initial June cut.

Germany's industrial sector remained affected by high energy costs, subdued exports and competition within automotive and capital-goods markets. France continued to face political uncertainty following the inconclusive parliamentary election.

United Kingdom

The Bank of England reduced Bank Rate from 5.25% to 5.00% at the beginning of August. The decision was finely balanced, with five Monetary Policy Committee members supporting a reduction and four preferring no change.

Headline inflation had returned to the 2% target during May and June. However, services inflation and private-sector wage growth remained elevated, causing the Bank to emphasise that future reductions would be gradual and data dependent.

The UK economy continued to recover from its 2023 recession, although underlying growth remained modest. Household purchasing power improved as wages increased faster than consumer prices.

Japan

Japan became central to global market volatility. The Bank of Japan's late-July rate increase, combined with weaker US data, caused the yen to appreciate rapidly.

Many international investors had borrowed yen at low interest rates to purchase higher-yielding currencies and risk assets. As the yen strengthened, these positions generated losses and were reduced rapidly, contributing to sharp declines across equities and other investments.

Bank of Japan officials subsequently sought to calm markets by indicating that additional tightening would not be pursued during periods of severe instability. The underlying direction of policy nevertheless remained towards gradual normalisation.

China

China's economy continued to produce disappointing domestic data. Property sales, new construction and household confidence remained weak, while manufacturing activity struggled to develop sustained momentum.

Exports remained more resilient, but growing international trade restrictions created risk for electric vehicles, batteries, solar equipment and other strategic industries.

Authorities continued introducing targeted monetary and housing measures. Investors nevertheless remained unconvinced that incremental support would be sufficient to restore household confidence or resolve developer debt problems.

Global Outlook

The probability of a global soft landing remained reasonable by the end of August. Inflation was declining, central banks were beginning to ease and most major economies had avoided severe contraction.

However, the early-August sell-off demonstrated that leveraged positioning and crowded investment strategies could amplify relatively modest economic surprises. Financial stability depended not only upon economic fundamentals but also upon market structure and investor positioning.

Equity Markets

Global equities experienced extreme short-term volatility but recovered strongly during the second half of August. Defensive sectors generally outperformed, while technology and smaller companies experienced larger price movements.

United States

The S&P 500 fell by more than 6% during the opening three trading sessions before recovering to finish the month approximately 2.3% higher. The Dow Jones Industrial Average gained close to 1.8% and ended August at a record closing level.

The Nasdaq Composite recovered most of its early decline but produced a more modest monthly return. Semiconductor shares remained volatile as investors reassessed high valuations and the expected commercial return from artificial-intelligence investment.

Utilities, consumer staples, healthcare and real estate performed comparatively well. These sectors benefited from lower bond yields and demand for more defensive earnings.

Small-capitalisation shares initially declined sharply because of recession fears. They recovered later but failed to repeat July's exceptional outperformance.

Technology and Semiconductors

Nvidia's earnings remained an important market event. The company reported rapid revenue growth and strong demand for artificial-intelligence processors, but investor expectations had become extremely demanding.

Questions concerning the timing of its next-generation Blackwell processors, infrastructure constraints and the sustainability of customer capital expenditure affected sentiment.

Cloud providers continued to invest heavily in processors and data centres. Markets increasingly distinguished between companies earning immediate infrastructure revenue and those incurring substantial costs in anticipation of future AI income.

Europe

European equities fell sharply during the opening sell-off before recovering. Defensive healthcare, utilities and consumer-staples companies generally outperformed more cyclical industrial and technology businesses.

Expectations of a September ECB reduction supported property and other rate-sensitive sectors. Weak manufacturing and subdued Chinese demand remained challenges for exporters.

United Kingdom

UK equities produced a positive monthly return. The Bank of England's rate reduction supported housebuilders, property businesses and selected domestic companies.

The FTSE 100 also benefited from defensive healthcare and consumer-staples exposure. Energy and mining shares were less supportive because of weaker oil and industrial-metal prices.

Japan

The Nikkei 225 experienced one of the most volatile periods in its history. It declined by 12.4% on 5 August after falling sharply during the previous sessions, before rebounding by more than 10% the following day.

The sell-off reflected yen appreciation, carry-trade liquidation and concern that stronger currency conditions would reduce exporters' translated earnings.

Japanese equities recovered much of the loss by month-end, but the episode demonstrated the market's sensitivity to exchange rates and international positioning.

China and Hong Kong

Chinese and Hong Kong equities remained subdued. Low valuations attracted selective demand, but weak property activity and consumer confidence prevented a sustained recovery.

Emerging Markets

Emerging-market performance was mixed. Lower US yields and a weaker dollar provided support, while global growth concerns and commodity weakness affected cyclical exporters.

Indicative August Performance

Fixed Income Markets

Government bonds advanced during August as weaker employment data, moderating inflation and central-bank communication strengthened expectations of monetary easing.

US Treasuries

US Treasury yields declined, with the two-year yield falling more sharply than the ten-year yield. The move reflected increasing confidence that the Federal Reserve would begin reducing rates in September.

The gap between two-year and ten-year yields moved close to zero after an extended period of inversion. A normalising curve could reflect expected easing, although historically it had also occurred when recession risks increased.

European Government Bonds

German Bunds benefited from weak regional activity and expectations of another ECB cut. French government bonds remained affected by political and fiscal uncertainty, although spreads were below the most stressed levels recorded during June.

UK Gilts

UK gilts advanced following the Bank of England's rate reduction. Markets anticipated additional easing, but the narrow vote and persistent services inflation suggested a gradual cycle.

Japanese Government Bonds

Japanese bond yields declined during the most volatile phase of the equity sell-off as investors sought defensive assets. Bank of Japan reassurance reduced expectations of immediate additional tightening.

Corporate Credit

Corporate-bond spreads widened during the early-August disruption before recovering. Investment-grade credit remained supported by healthy corporate balance sheets.

High-yield borrowers experienced greater volatility because recession concern increased expected default risk. Income remained attractive, but tight starting spreads provided limited protection against deterioration.

Private Credit

Private credit remained active, although the market volatility reinforced the importance of conservative leverage and borrower liquidity. Expected policy easing could reduce floating-rate interest costs over time.

Investors continued to monitor amendments, payment-in-kind interest and maturity extensions for signs that reported portfolio stability concealed underlying stress.

Foreign Exchange

Currency markets were central to August's volatility. The Japanese yen appreciated sharply, while the US dollar recorded one of its weakest months of the preceding year.

US Dollar

The dollar weakened as markets anticipated Federal Reserve easing and Treasury yields declined. Powell's Jackson Hole comments reinforced expectations that the September meeting would begin the rate-cut cycle.

Euro

The euro strengthened against the dollar despite expectations of another ECB reduction. Dollar weakness and improving risk sentiment later in the month provided support.

Sterling

Sterling appreciated against the dollar even after the Bank of England reduced rates. The narrow vote and cautious guidance suggested that UK easing would proceed gradually.

Japanese Yen

The yen appreciated dramatically during the first week. Investors unwound carry trades after the Bank of Japan's July increase and the decline in US yields reduced the return available from holding dollar assets.

The currency surrendered part of its gain as markets stabilised, but remained stronger than the extreme lows reached during July.

Chinese Renminbi

The renminbi benefited modestly from dollar weakness but remained constrained by domestic monetary easing and economic uncertainty.

Commodities

Commodity markets were shaped by competing forces: lower interest rates supported precious metals, while concern about global and Chinese demand affected oil and industrial commodities.

Oil and Energy

Oil prices were volatile and generally weakened. Concern about US and Chinese demand outweighed geopolitical risk and continuing OPEC+ production restraint.

Conflict in the Middle East and disruption around the Red Sea remained potential sources of supply risk, but physical availability remained adequate.

Gold

Gold reached further record levels as Treasury yields and the dollar declined. Anticipated Federal Reserve easing reduced the opportunity cost of holding the non-income-producing metal.

Central-bank buying and geopolitical uncertainty continued to support long-term demand.

Copper and Industrial Metals

Copper remained well below its May peak. Weak Chinese property demand and global growth concern offset the long-term need for metal within electricity infrastructure and data centres.

Agricultural Commodities

Agricultural prices remained mixed. Weather conditions and harvest expectations weighed on several grains, while cocoa and coffee remained affected by regional supply constraints.

Digital Assets

Digital assets declined during the initial risk-off episode and recovered only partially. The market remained sensitive to global liquidity, leverage and institutional fund flows.

Bitcoin

Bitcoin fell sharply during the opening sell-off before recovering. Spot ETF flows remained important, although institutional participation did not prevent significant short-term volatility.

Ethereum

Ether underperformed after the launch of US spot ETFs in July. Inflows into new products were offset partly by withdrawals from a converted legacy trust.

The funds did not offer staking rewards, which reduced their relative attraction compared with direct holdings for some investors.

Institutional Development

Financial institutions continued developing tokenised funds, settlement systems and custody services. Interest remained strongest where blockchain technology supported regulated conventional assets.

Risk Considerations

• Digital assets remained highly sensitive to leveraged risk reduction.
• ETF flows could reverse during periods of market stress.
• Ether ETF demand initially fell below the most optimistic expectations.
• Regulatory treatment of staking and alternative tokens remained uncertain.

Private Equity

Private-equity conditions remained stable but cautious during August. Expected interest-rate reductions improved the medium-term financing outlook, while the public-market sell-off demonstrated the continued fragility of exit windows.

Deal Activity

Mid-market transactions remained active within software, healthcare, business services and specialist industrial sectors. Larger leveraged buyouts remained more dependent upon strong credit-market conditions.

Financing

Lower government yields supported refinancing, although credit spreads briefly widened during the market disruption. Sponsors continued to favour moderate leverage and diversified funding sources.

Exits

IPO candidates faced a more uncertain environment as volatility increased. Trade sales, secondary buyouts and continuation vehicles remained more reliable alternatives.

Private Credit

Private-credit portfolios could benefit eventually from lower base rates through improved borrower affordability, although reduced rates would also lower lender income.

Managers continued balancing current yield against the risk that weaker borrowers had accumulated excessive debt during the high-rate period.

Secondaries

Secondary transactions remained attractive to investors seeking mature assets and shorter expected holding periods. Market volatility could create additional discounts where sellers required liquidity.

CE Global Private Equity Observations

• Volatility reinforced the value of conservative capital structures.
• Expected rate cuts improved the future refinancing outlook.
• Exit planning required multiple alternatives.
• Private-credit valuations required realistic treatment of borrower stress.
• Secondaries could benefit from liquidity-driven pricing opportunities.

Artificial Intelligence & Technology

Artificial intelligence remained a powerful structural theme, but August's volatility increased investor scrutiny of valuations, infrastructure constraints and commercial returns.

Semiconductors

Demand for advanced processors remained strong, although semiconductor shares experienced substantial price swings. Concerns included product delays, export restrictions and whether cloud customers could maintain exceptional capital expenditure.

AI Infrastructure

Investment continued across networking, high-bandwidth memory, data centres, cooling and electricity. Physical infrastructure increasingly represented the principal constraint upon AI deployment.

Enterprise Adoption

Businesses expanded pilot programmes but remained cautious about accuracy, confidential information and integration. The commercial value of generative AI varied significantly by application.

Cybersecurity

AI-enabled phishing, impersonation and fraud increased demand for identity verification and threat detection. Security remained one of the clearest enterprise technology priorities.

Technology Risks

• High valuations remained vulnerable to modest disappointments.
• Infrastructure expenditure could exceed near-term revenue.
• Electricity and data-centre constraints could delay deployment.
• Export controls could disrupt semiconductor supply chains.
• Enterprise adoption remained slower than consumer experimentation.

Sector Spotlight

Infrastructure Secondaries

August's sector spotlight examines infrastructure secondaries, an increasingly important market for investors seeking mature assets, inflation-linked cash flows and shorter holding periods.

Market Development

Infrastructure funds had grown significantly across renewable energy, transport, utilities, digital networks and social infrastructure. As these portfolios matured, institutional investors increasingly sought liquidity through secondary sales.

Investment Characteristics

Secondary buyers could acquire diversified exposure to operational assets rather than assuming the full development and construction risk associated with new projects.

Pricing below reported net asset value could improve potential returns, while earlier cash distributions reduced the duration of the investment.

Digital Infrastructure

Data centres, fibre networks and communications towers remained prominent assets. Demand was supported by cloud computing and artificial intelligence, although valuations and electricity availability required careful assessment.

Energy Infrastructure

Renewable generation, storage and electricity networks offered long-term growth but remained sensitive to regulation, power prices and financing costs.

Principal Risks

Reported valuations could lag changing interest rates or operating conditions. Investors also needed to examine fund-level leverage, asset concentration and future capital requirements.

Investment Perspective

Infrastructure secondaries offered an attractive combination of mature assets and potential discounts. The strongest opportunities involved transparent cash flows, high-quality operators and limited unfunded commitments.

Regulatory Update

Regulatory developments during August focused on artificial intelligence, operational resilience, digital assets and private-market valuation.

EU Artificial Intelligence Act

The European Union's Artificial Intelligence Act entered into force on 1 August. Its requirements would apply in stages, giving organisations time to identify systems and develop compliance frameworks.

Businesses began mapping prohibited, high-risk and transparency-sensitive applications. Governance responsibilities extended beyond technology teams to legal, compliance and operational management.

Operational Resilience

The early-August market disruption highlighted the importance of liquidity, collateral management and understanding leveraged exposures. Financial institutions reviewed the risks created by crowded carry trades.

Digital Assets

Regulators continued examining ETF custody, stablecoin reserves and token classification. European firms prepared for additional MiCA requirements.

Private Markets

Valuation practices remained a focus as public-market volatility created more current reference prices than were available within private portfolios. Managers needed to consider whether comparable-company changes affected private marks.

Compliance Priorities

• Create a complete inventory of artificial-intelligence systems.
• Prepare for staged EU AI Act requirements.
• Review leveraged currency and derivatives exposure.
• Strengthen liquidity and collateral stress testing.
• Ensure private valuations reflect changing public comparables.
• Review digital-asset custody and counterparty arrangements.

Looking Ahead

Markets entered September expecting the Federal Reserve to deliver its first reduction of the cycle. The size of the move would depend upon employment, inflation and the degree of concern regarding economic growth.

Federal Reserve

A quarter-point cut remained the base expectation, while weaker employment data could create support for a larger initial move. Markets would focus on updated projections and guidance regarding subsequent meetings.

European Central Bank

The ECB was also expected to reduce rates in September. Weak growth and falling inflation supported easing, although wage and services pressure required caution.

Bank of England

Following its August reduction, the Bank of England was expected to proceed gradually. Policymakers required additional evidence that wage and services inflation were moderating.

Bank of Japan

The Bank of Japan was likely to avoid rapid tightening after the August volatility. However, gradual policy normalisation and reduced bond purchases remained its longer-term direction.

Employment and Growth

US labour data would remain the most important global market indicator. Moderate slowing could support bonds and equities, while abrupt weakness would revive recession fears.

Corporate Earnings

Investors would continue examining AI expenditure and the ability of technology companies to convert infrastructure investment into revenue and cash flow.

Geopolitics

Conflict in Ukraine and the Middle East remained capable of affecting energy prices and risk appetite. The approaching US presidential election would also become increasingly important.

Private Markets

Lower rates could improve transaction and refinancing conditions. Nevertheless, sponsors would need to maintain discipline where valuations already anticipated substantial policy easing.

CE Global Private Equity Perspective

August demonstrated that market stability could be disrupted rapidly when crowded positions, leverage and changing monetary expectations interacted. The speed of the recovery was encouraging, but it did not remove the underlying risks.

The transition towards lower global interest rates should provide gradual support to financing and valuations. However, rate cuts prompted by orderly disinflation would be more constructive than cuts responding to severe economic weakness.

CE Global Private Equity believes that resilient cash flow, moderate leverage and liquidity remain particularly valuable during periods of uncertain growth. Attractive opportunities continue across infrastructure, cybersecurity, healthcare, specialised industrial services and selected technology businesses.

Investors should avoid relying upon a single economic scenario. Diversification across sectors, regions and financing structures can provide protection against both renewed inflation and a sharper-than-expected slowdown.

This market review is provided for general information and discussion purposes only. It does not constitute investment, legal, tax or other professional advice, nor an offer or solicitation to purchase or sell any security, financial instrument or investment product. Market values can rise or fall, and past performance is not a reliable indicator of future results.