August was a tumultuous month for markets. There was panic around yield curve inversions, fears of an escalating US-China trade war and concerns around political crises in countries ranging from the UK to Argentina to Hong Kong. Some markets stabilised towards the end of the month and into September, but not all.
Trump Vs. Fed
The first half of August saw the worst of it. The US yield curve inverted, real 10 US yields turned negative and 30 year US yields fell below 2%. US stocks were down over 6% at one point, though they ended the month down only 1.6%. An intriguing debate also emerged between President Trump and the Fed around who was the cause for the sell-offs – Trump’s escalating trade war or the Fed’s reticence to ease policy dramatically. This will be one to watch for the months ahead…
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August was a tumultuous month for markets. There was panic around yield curve inversions, fears of an escalating US-China trade war and concerns around political crises in countries ranging from the UK to Argentina to Hong Kong. Some markets stabilised towards the end of the month and into September, but not all.
Trump Vs. Fed
The first half of August saw the worst of it. The US yield curve inverted, real 10 US yields turned negative and 30 year US yields fell below 2%. US stocks were down over 6% at one point, though they ended the month down only 1.6%. An intriguing debate also emerged between President Trump and the Fed around who was the cause for the sell-offs – Trump’s escalating trade war or the Fed’s reticence to ease policy dramatically. This will be one to watch for the months ahead.
Political Crises Abound
If emerging markets weren’t nervous enough around the US-China tussle, Argentina entered crisis mode as the market unfriendly Presidential candidate, Alberto Fernandez, handily beat incumbent President Macri in primary elections. The odds of a debt default shot up and the currency plunged to new lows. Meanwhile, just as UK data and the pound were stabilising, UK Prime Minister Boris Johnson announced at the end of August that parliament would effectively be suspended for five weeks. This saw the pound tumble into September. Finally, Hong Kong protests continued and the economy is teetering on recession.
What Investors were Reading
As for how investors were thinking throughout this period, we can gain insights from what they were reading on the Macro Hive site. In both Americas and Europe, the most read special was on oil markets, which showed investors were not just focused on collapsing yields. That said, the other popular reads for the regions were related to QE, MMT and market liquidity conditions. In Asia, unsurprisingly, the special report on renmimbi took the top spot, followed by the contrarian piece on recession forecasts being overdone.
Perhaps reflecting the state of the financial industry outside of Asia, our unique special written by an anonymous banker bemoaning the lack of opportunities for forty-somethings was widely read in the Americas and Europe.
Opinion Pieces: Most Clicked
Americas
- Oil’s Existential Crisis?
- Thoughts from Camp Kotok 2019: China, MMT, and lower/NIRP rates
- Why QE Doesn’t Really work
- Connection Terminated: My Experience as a Financial Ronin
- Are Markets Under Anaesthetics?
Europe
- Oil’s Existential Crisis?
- Why QE Doesn’t Really work
- Are Markets Under Anaesthetics?
- What Argentina and Macri can teach Zelensky and Ukraine
- Connection Terminated: My Experience as a Financial Ronin
Asia
- Renminbi Falls. But could this be good news?
- Recent Recession Forecasts are Crying Wolf
- My Five Takeways from the Fed’s Jackson Hole Symposium
- Oil’s Existential Crisis?
- It’s Europe with the Recession Risk, Not the US
We can get more colour by looking at which our curated content was most read or listened to. From our blog picks, the signalling power of the yield curve, housing markets and trade war-induced dollar strength were most popular. From our podcast picks, yield curve topics were again popular, but so was Brexit.
Curated Content: Most Clicked
Blogs
- Inverted Yield Curves and Expected Stock Returns
- Assessing house prices: Insights from a dataset of price level estimates
- Back-of-the-Envelope Calculation of Trump Induced Dollar Appreciation
- The Great Inflation Delusion
- S. Dollar Policy: Through the Looking Glass of U.S. Currency Intervention
Podcasts
- Top of Mind: Dissecting the Market Disconnect
- Yield Curves Don’t Lie. But Central Bankers Sometimes Do
- Brexit Update: Constitutional Warfare
- Riksbank Set To Support a Weaker SEK, Steeper Curves
- Danielle DiMartino-Booth and Peter Boockvar on the Future of Monetary Policy
Bottom line
There seems to be no running away from yield curve and monetary policy dynamics – they remain top of the agenda for investors. The coming month is unlikely to see that change.