Key News and Events
- The U.S.-China trade dispute re-escalated over the week. The Chinese government announced a new set of tariffs, ranging from 5% to 10%, on $75 billion worth of U.S. imports effective from September 1st. In response, U.S. President Donald Trump announced that U.S. tariffs on Chinese imports will be raised by 5% across the board, increasing existing tariffs on $250 billion worth of Chinese goods from 25% to 30% and raising tariffs on the remaining untaxed portion of Chinese imports from the previously announced 10% to 15%.
- President Trump also announced via Twitter that U.S. companies are "hereby ordered" to quit China, citing his powers under the International Emergency Economic Powers Act. However, this would require a formal national emergency declaration in order to be implemented. In other news, the U.S. granted Chinese tech giant Huawei a further 90-day extension to their export license, allowing them to continue purchasing from U.S. companies.
- Central bankers around the world gathered at Jackson Hole, Wyoming, for a major monetary policy conference. U.S. Federal Reserve (Fed) chairman Jerome Powell said that central banks are faced with an unprecedented situation due to the ongoing trade conflict. He mentioned that the Fed is close to achieving its statutory inflation and full employment targets and stated that trade policy is a matter for Congress and the Trump administration.
- Elsewhere, the European Central Bank's (ECB) latest minutes signaled that interest rates would be cut further later this year, which may be accompanied by additional bond buying. Elsewhere, Germany issued a 30-year zero coupon debt at a yield of -0.11% but was only able to sell c.40% of the 2 billion euros to investors. Meanwhile, Italian Prime Minister Giuseppe Conte resigned after the coalition between the Five Star Movement and the Northern League collapsed.
Week in Markets
- Global equity markets fell over the week amidst increasing headwinds from the US-China trade war.
- The S&P 500 index fell by 1.4% over the week, underperforming the MSCI World index, which fell by 0.6%. On a year-to-date basis, S&P 500 index outperformed the MSCI World index (15.1% vs 13.2%).
- U.S. Large Cap stocks outperformed Small Cap stocks over the week, as the S&P 500 index fell by 1.4% while the Russell 2000 index fell by 2.3%. On a year-to-date basis, the S&P 500 index outperformed the Russell 2000 index (15.1% vs 9.2%).
- Growth stocks outperformed Value stocks over the week as measured by the MSCI USA Growth and Value index. Growth Stocks fell by 1.3% while Value Stocks fell by 1.5% over the week. On a year-to-date basis, Growth Stocks outperformed Value Stocks (20.6% vs 10.2%).
- The 10-year U.S. treasury yield fell by 2bps to 1.52% and 30-year U.S. treasury yield rose by 2bps to 2.02% over the week.
- The 20-year TIPS yield fell by 1bps to 0.19% and 20-year breakeven inflation rose by 1bps to 1.63% over the week.
- The spreads on the Bank of America Merrill Lynch U.S. Corporate Index fell by 6bps to 125bps and the spreads on the Bloomberg Barclays Long Credit Index fell by 5bps to 167bps over the week.
- The U.S. High Yield bond spread over U.S. treasury yields fell by 22bps to 425bps and the spread of USD denominated EM debt over U.S. treasury yields was unchanged at 377bps over the week.
- The S&P GSCI index fell by 0.6% in USD terms over the week.
- The S&P GSCI Energy index fell by 0.3% as the price of WTI crude oil fell by 1.3% to US$54/BBL.
- Industrial Metal prices fell by 1.3% as copper prices fell by 0.6% to US$5,675/MT.
- Agricultural prices fell by 2.0% and gold prices fell by 0.8% to US$1,504/Oz.
- The U.S. dollar depreciated against most major currencies (except the euro) over the week.
- Sterling appreciated by 1.1% against the U.S. dollar over the week, ending the week at $1.23/£.
- The euro remained unchanged against the U.S. dollar over the week, ending the week at $1.11/€.
- The Japanese yen appreciated by 0.4% against the U.S. dollar over the week, ending the week at ¥105.96/$.
- The Canadian dollar appreciated by 0.2% against the U.S. dollar over the week, ending the week at C$1.33/$.
Highlighted Last Week Releases
Markit US Manufacturing PMI
The U.S. Manufacturing PMI fell into contractionary territory for the first time in 10 years, unexpectedly falling by 0.5 points to 49.9 despite analyst forecasts for a small increase. This reflected a much weaker new orderbook, as new business for manufacturing companies fell for the second time in the past four months. Meanwhile, data also shows the fastest reduction in export sales since August 2009.
Consumer confidence in the Eurozone fell by 0.5 points to -7.1 in August, reversing the previous month's increase as optimism about personal finances is counteracted by pessimism about the general economic outlook.
Markit/BME Germany Manufacturing PMI
Germany's Manufacturing PMI bounced back from a seven-year low of 43.2 to 43.6, defying analyst expectations of a slight fall to 43.0. However, the reading indicated the eighth consecutive month of contraction. New orders fell further on the back of weak external demand, whilst manufacturing employment experienced the largest decline in seven years.
Sources: Global Asset Allocation, Bank of America Merrill Lynch, Barclays Capital, Factset. Click here for index descriptions.
The information contained above should be regarded as general information only. That is, your personal objectives, needs or financial situation were not taken into account when preparing this information. Accordingly, you should consider the appropriateness of acting on this information, particularly in the context of your own objectives, financial situation and needs. Nothing in this document should be treated as an authoritative statement of the law on any particular issue or specific case. Use of, or reliance upon any information in this post is at your sole discretion. It should not be construed as legal, tax or investment advice. Please consult with your independent professional for any such advice. The information contained within this blog is given as of the date indicated and does not intend to give information as of any other date. The delivery at any time shall not, under any circumstances, create any implication that there has been a change in the information since the date of publication, or any obligation to update or provide amendments after the original publication date. The blog content is intended for professional investors only.
Past Performance is no guarantee of future results. Indices cannot be invested in directly. Unmanaged index returns assume reinvestment of any and all distributions.
The opinions referenced are as of the date of publication and are subject to change due to changes in the market or economic conditions and may not necessarily come to pass. Information contained herein is for informational purposes only and should not be considered investment advice.