Justas Daujotas. August Review – What’s Happening in the Financial Markets? | Business

Exaggerated fears of a global recession have also contributed to worries about Japan. However, after reaching a higher level of panic, investors rushed to “buy back” the fallen shares, so August was another positive month in the markets.

Looking ahead, central bank policy remains one of the most significant factors. The head of the US central bank J. Powell admitted in his annual speech in Jackson Hole that the time has come to lower interest rates. During the month, market participants consistently raised expectations for easier monetary policy and expect 100 basis points lower rates by the end of the year.

Euro zone inflation fell to three-year lows in August – prices grew by just 2.2 percent in annual terms. Coupled with slowing wage growth, rising unemployment and minimal economic expansion, a decision by the ECB to cut interest rates by 25 basis points is expected in September as well in Europe.

Pension funds of Luminor Investment Management took advantage of the opportunity to purchase shares of US companies at a discount in August. Increased holdings of technology and other sector leaders such as Apple, Nvidia, Microsoft in pension funds in pursuit of higher returns for savers.

Yen-induced sell-off

Despite the short duration of the turbulence, August’s market events were shaped by long-term structural trends in Japan. A decades-long deflationary environment has led to negative interest rates in this country, which has created an environment to borrow cheaply and invest in higher-yielding assets elsewhere.

Here, investors borrowed yen with minimal interest, invested in shares and bonds of other countries, and after securing profits, they covered their debt with yen. The trend was also helped to accelerate by the consistently appreciating Japanese currency (14% against the US dollar since the beginning of the year), which was pressured by the large gap between interest rates in the local market and in the US.

However, when the Bank of Japan decided to raise interest rates, the prospects for further returns from such a strategy decreased and market participants had to sell the most liquid investments. Although it is difficult to define the exact amount of money affected, but predictions reach more than one trillion US dollars.

The sell-off in the stock markets was short-lived, and various sentiment indicators already recorded excessive pessimism in the market on Monday. That was enough to send the US S&P 500 up more than 7 percent in two weeks, after the main pressure from the appreciating yen had passed. The rise in stock prices belied somewhat exaggerated concerns about the state of the US economy, specifically the weakening labor market. Both structural changes in the labor market due to the “gig” economy, the seasonal impact of hurricanes in the US, and the increase in the number of working people due to immigration led to a somewhat higher unemployment rate than was forecast. All of these factors are historically not as significant as layoffs or declining job postings.

The outlook for the Japanese stock market is somewhat worse. As the rate of inflation rises, the central bank will be faced with the need to raise rates despite the negative impact on the currency. After raising the rates twice already, a third hike is at risk this year. Historically, in such a scenario, the Japanese stock market has posted a negative performance both quarterly and half-yearly.

A strengthening currency will also significantly negatively affect the country’s international companies, whose profits expressed in yen will be lower than before. Even before the events of the last month, the profit forecast of Japanese companies for the coming year reached a little more than 8 percent, when the real profit growth of the previous year was as much as 20 percent.

A difficult quarter for companies in the semiconductor sector

At the end of August, one of the most watched events in the markets was the quarterly results of chip company Nvidia. Revenue grew by 122 percent. and exceeded market participants’ expectations, but at a slower pace than the previous four quarters. Analysts were somewhat disappointed by the company’s falling margins, but development in the smaller segments of communication infrastructure and software gave them a positive mood.

For the coming quarter, the company provided slightly higher forecasts for the new Blackwell series of chips and further data center expansion to include more industries. The company’s shares fell just over 6 percent after the results, but still ended the month down 2 percent. growing up

Nvidia’s historical rivals, Intel, fared somewhat worse. The company’s shares fell more than 20 percent after the announcement of the results in early September, after reporting a larger-than-expected loss in the quarter and due to a 10 billion euro charge. more than 15 percent of the cost-cutting program will be released. employees. The company predicts another 8 percent. declining revenues in this quarter and more significant profit growth only in 2026.

One of the hottest stocks this year – “Super Micro Computer” – did not escape the negative sentiment. The shares of the company that develops high-capacity servers (part of which is also intended for private enterprise data centers) grew threefold during the first months of this year. Still, they fell more than 60 percent from their peak in March to the end of August, falling significantly after disappointing quarterly results.

During the year, the market participants were scared from 17 to 11.2 percent. falling gross profit margin. It also failed to deliver higher profit forecasts for the coming quarter. The report of the market research company “Hindenburg research” about possible fraud in the company’s financial documents caused more concern. Fears were also fueled by the delay in submitting annual financial reporting documents to the US regulator.

From global markets to local markets

EPSO-G, one of the issuers of Luminor pension fund bonds, has announced its financial results for the first half of this year. The net profit of the group of energy transmission and exchange companies fell by almost 4 percent during the year, reaching 10 percent. adjusted return on equity.

EPSO-G allocated almost 18% in the first half of this year. more investments in projects that strengthen Lithuania’s energy independence. In total, investments in infrastructure amounted to 94.1 million. euros.

The company maintained financial discipline – the net debt-to-equity ratio was 4.9 percent, and the net debt-to-EBITDA (twelve-month) ratio was just 0.3 percent.