Tuesday 17 September, 2019
Global Market View
The heat wave that swept across the Northern Hemisphere seemed to flare the tempers of world leaders in August. Escalating bilateral trade disputes and political unrest in regions such as China/Hong Kong weighed on investor sentiment, and we saw the Volatility Index (VIX) shoot up towards 25, the highest level since the sharp correction at the end of last year.
Stock markets took a leg down in August, and the S&P 500 was particularly volatile, experiencing three trading days of significant drawdowns (-2.5% or more). The last time this occurred in a single month was September 2011, during the European sovereign debt crisis.
Bond markets echoed the growing concerns of a global slowdown, and US Treasury yields fell to a record low as demand for safe assets spiked. Commodities like gold, platinum and silver also surged as day traders rushed to increase portfolio diversifiers.
Over in Europe, the determination to deliver Brexit with or without a deal by the new Boris Johnson administration caused a panic in the continent’s two largest economies - Germany and the UK. While stock markets have reacted swiftly to price-in the pessimism, economists are fearful that a no-deal Brexit will push the already contracting German economy further into a protracted recession.
Nevertheless, there were bright spots in the market and equities recovered from the worst of the mid-month losses. The two major positives for equities currently are lower interest rates and (still) robust corporate earnings, and while these factors are in play, the backdrop for equities remains broadly supportive.
Looking ahead, September will see important central bank meetings from the European Central Bank (Sept 12th) and Federal Reserve (Sept 18th). With monetary easing on the cards and plenty more ammunitions in the central banks’ arsenal, there are good reasons to look through any short-term political turmoil.
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