Markets, News, and Views….. 

Much ado about nothing?    The concerns that emerged at the end of July about the trade dispute between the US and China all spilled over into August. Fears of global recession intensified and equity markets suffered some significant falls. However, it was not all bad news and by the end of the month our All Ordinaries Index had recovered to finish the month about 2% down while the US Dow Jones Index was less than 1% lower. 

Still, August was a turbulent month for global financial markets.  The volatility we saw throughout was exacerbated by the seasonal thinness of trading conditions with the Northern Hemisphere summer holidays, and by a litany of sensationalist headlines in the popular media and, of course, Donald’s daily tweets.

Each morning we receive an email from researcher Morningstar which summarises the overnight activity on world markets and August was a great example of meaningless, short-term noise.  The trade dispute was the main topic in August and markets gyrated daily based largely on what comments were thrown about on Twitter.     Check out the screenshot of our Inbox below…..

But what is true is that there is an underlying fragility in markets with a high degree of uncertainty among investors about what is happening with the global economy. There is a tug-of-war going on in investors’ minds between:

  • data showing the US economy is still in good shape, but signs that Europe and China are slowing down; and
  • central banks offering more policy easing, but fears that low interest rates do not work anymore.

Data continued to show that manufacturing sectors around the world are bearing the brunt of the trade dispute and Brexit, while services sectors and households are still in fair shape. Central banks around the world have either eased policy further, or flagged imminent policy changes, notably in Europe. The Reserve Bank of Australia has kept the cash rate at 1% but reiterated that it can fall further if required. The US and German governments said they are considering fiscal stimulus for their economies.

The general air of uncertainty and caution around global markets has been compounded by developments in Hong Kong, in the UK with Brexit, in Italy with the government collapsing and in Argentina with surprise election results triggering a fall of over 30% in the equity market in one day.  There is a growing feeling that the geo-politic risks are getting to the point where they may spill into the financial markets and start having an impact in more real terms.

Overnight market updates for the last 10 days of August show the daily gyrations:

Other Sources:  CommSec, Quilla Consulting, RBA, Bloomberg.