Increasingly aggressive price action has dominated global financial markets over the past week, with heightened volatility experienced on Friday as the US and China trade war plumbed new depths.
But to rewind, last week began on a more stable footing, after the prior week saw an aggressive “risk off” move with a push to lower yields on US Treasury and global Government Bonds. Last week, however, saw Bond markets correcting from either multi-year or in some instances historic low yield levels (as seen in the US 30-year Bond and across the German Government Bond curve). This correction back to slightly higher yield territory, alongside the 2-10yr sector of the US yield curve un-inverting, began to ease the concerns of a US recession in the next few years. This in turn allowed US and global equity markets to start to recover.
The rebound in shares was also helped by an indication from China last weekend of easier monetary policy for corporates and also from the US last week, with talk from the White House of a fiscal boost from a lowering of payroll taxes.
The focus then switched to the Federal Market Open Committee Meeting Minutes on Wednesday, which delivered mixed signals from a split Fed, probably less dovish than financial markets had priced in. Although the reaction across asset classes was muted, equity averages globally continued to attempt to secure intermediate-term bases.
However, it was at the end of the week on Friday that saw the explosion in price volatility, as global financial markets shifted quickly back to a “risk off” mode. Firstly, China stated they would retaliate with new tariffs on $75 billion of US goods and services, which then saw a reaction from President Trump “ordering” US companies not to do business with China. This was followed up by Trump after markets had closed Friday by an announcement of an additional 5% on $250 billion of Chinese goods already being tariffed and on tariffs yet to take effect but due to impact on 1st September and 15th December.
All this activity sent US and global stock indexes plunging lower alongside a weakening of the US Dollar, while safe haven assets like Government Bonds, Gold and the Japanese Yen pushed higher. In addition, global equity markets are due to open lower again Monday.
The Jackson Hole Economic Symposium and G7 Meeting at the weekend were overshadowed by the trade war escalation, as the trade conflict once more takes centre stage.
What to Watch
Once again, key to monitor for the week will be any heightened tensions in the trade conflict. In addition, on the data front the standouts for the week are; US Capital Goods Orders on Monday, German Gross Domestic Product (GDP) and US Consumer Confidence on Tuesday, German Unemployment and Consumer Price Index (CPI) on Thursday along with US GDP and QoQ Personal Consumption Expenditure (PCE) and finally US MoM and YoY PCE Friday.
|26th August||UK markets closed for late summer Bank Holiday; German IFO survey; US Capital Goods Orders|
|27th August||German GDP; US Consumer Confidence|
|28th August||German 10yr Bond Auction|
|29th August||German Unemployment and CPI; US GDP and QoQ PCE|
|30th August||US MoM and YoY PCE|