Key News and Events
- Global growth concerns escalated over the week. The widely watched spread between 10 and 2-year U.S. Treasury yields briefly fell into negative territory for the first time since 2007. Inversion in this part of the yield curve is widely used as a sign of a potential upcoming recession as a recession has followed every yield curve inversion since the 1960s. Meanwhile, the German economy contracted by 0.1% in the second quarter, whilst Eurozone GDP growth slowed to 0.2%.
- Government bond yields of major developed markets breached new lows amidst global growth concerns and increasing expectation for further monetary easing. The U.S. 30-year bond yield fell below 2% for the first time in history, whilst the German 10-year bund yield fell to a new record low, ending the week at -0.72%.
- In a respite to the escalating U.S.-China trade dispute, the Trump administration announced a partial delay from September to December to the proposed 10% tariff on $300bn of previously untaxed Chinese consumer goods imports. Meanwhile, the Chinese government vowed to retaliate if the U.S. imposes further tariffs on Chinese products and stated that the new tariffs represent “a serious violation of the consensus” reached in talks at the G20 summit in June.
Week in Markets
- Global equity markets fell over the week amidst increasing fears of a global recession.
- The S&P 500 index fell by 0.9% over the week, outperforming the MSCI World index, which fell by 1.2%. On a year-to-date basis, S&P 500 index outperformed the MSCI World index (16.7% vs 13.9%).
- U.S. Large Cap stocks outperformed Small Cap stocks over the week, as the S&P 500 index fell by 0.9% while the Russell 2000 index fell by 1.2%. On a year-to-date basis, the S&P 500 index outperformed the Russell 2000 index (16.7% vs 11.7%).
- Growth stocks outperformed Value stocks over the week as measured by the MSCI USA Growth and Value index. Growth Stocks fell by 0.7% while Value Stocks fell by 1.3% over the week. On a year-to-date basis, Growth Stocks outperformed Value Stocks (22.2% vs 11.9%).
- The 10-year U.S. treasury yield fell by 19bps to 1.54% and 30-year U.S. treasury yield fell by 25bps to 2.00% over the week.
- The 20-year TIPS yield fell by 10bps to 0.20% and 20-year breakeven inflation fell by 11bps to 1.62% over the week.
- The spreads on the Bank of America Merrill Lynch U.S. Corporate Index rose by 5bps to 131bps and the spreads on the Bloomberg Barclays Long Credit Index rose by 5bps to 172bps over the week.
- The U.S. High Yield bond spread over U.S. treasury yields rose by 16bps to 447bps and the spread of USD denominated EM debt over U.S. treasury yields rose by 30bps to 377bps over the week.
- The S&P GSCI index fell by 0.9% in USD terms over the week.
- The S&P GSCI Energy index rose by 0.6% as the price of WTI crude oil rose by 0.7% to US$55/BBL.
- Industrial Metal prices rose by 0.8% as copper prices fell by 0.6% to US$5,710/MT.
- Agricultural prices fell by 4.8% and gold prices rose by 1.2% to US$1,515/Oz.
- The U.S. dollar appreciated against most major currencies (except sterling) over the week.
- Sterling appreciated by 0.5% against the U.S. dollar over the week, ending the week at $1.21/£.
- The euro depreciated by 0.9% against the U.S. dollar over the week, ending the week at $1.11/€.
- The Japanese yen depreciated by 0.7% against the U.S. dollar over the week, ending the week at ¥106.39/$.
- The Canadian dollar depreciated by 0.5% against the U.S. dollar over the week, ending the week at C$1.33/$.
Highlighted Last Week Releases
U. of Mich. Sentiment
Consumer sentiment in the U.S. fell by 6.3 points to 92.1 in August, reaching the lowest level in seven months. Escalating U.S.-China trade tensions and an increasingly volatile equity market heightened consumer uncertainty. The survey also suggested that many consumers believed the first Federal Reserve rate cut in a decade to be indicative of a potential economic slowdown.
Industrial Production WDA YoY
Industrial production in the Eurozone fell by 2.6% year-on-year in June, recording the steepest decline in industrial activities this year. Analysts were expecting a less severe decline of 1.5%.
GDP SA QoQ
Germany's GDP contracted by 0.1% in the second quarter, recording the second quarterly economic contraction in a year, as global growth concerns and troubles in the German automotive manufacturing sector dragged on growth.
Sources: Global Asset Allocation, Bank of America Merrill Lynch, Barclays Capital, Factset. Click here for index descriptions.
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