August in Figures

August 31, 2019

The most discussed financial market development of August is actually not depicted in the standard month in figures table below, and that was the inversion of the U.S. yield curve, which has been a pretty reliable leading indicator of a recession beginning 18-24 months later. Between the end of July and August 30th, the U.S. T-bill yield fell just 9 basis points to 1.99% but the 30-year bond yield tumbled by 57 basis points to 1.96%. The 2-year note yield dropped 39 basis points to 1.50%, but the 10-year note yield declined by a steeper 52 basis points to 1.50% as well. A debate raged during the month on what factor was responsible for this inversion. President Trump placed blame squarely on Federal Reserve policy and suggested that Chairman Powell is an even bigger enemy of America and Chinese President Xi. Business leaders, economists and the community of other nations pointed their figure at U.S.-Sino trade tensions and other geopolitical risks. One thing became quite clear: winning a trade war isn’t going to be an easy or quick matter as President Trump had earlier proclaimed.

In August, the 52-basis point drop in the U.S. 10-year Treasury yield eclipsed the decline of other sovereign debt yields of same maturity. The Japanese and British counterparts fell less than 15 basis points, for instance. The negative Swiss yield swelled past a full percentage point.

There were no central bank rate changes in August among the Fed, ECB, Bank of Japan, Bank of England or Swiss National Bank. However, a slew of other central banks did cut rates partly in anticipation that the Fed might enact a second cut at its September meeting.

Unlike July, August proved a difficult month for equities, although several markets closed above their lows for the month. The Canadian TSE actually edged marginally higher on balance, and the Swiss SMI lost negligible ground. The British Ftse was particularly hammered, as BoJo’s new government seemingly hurtled toward an end-October rendezvous with a hard no-deal breakaway with the EU.

Among commodities, the price of gold was lifted 6.6% in the month as investors considered asset safety to be more important than asset return. WTI oil, however, fell 4.9% as the screws tightened of U.S. economic sanctions against Iran.

With other markets swirling, EUR/USD was a comparative oasis of stability, with the dollar trading as weekly as 1.1250 per euro but closing a mere 0.6% higher for the month on balance. Movements in the dollar against the Swiss franc and sterling were held to no more than 0.5%. On the other hand, the dollar fell 2.4% against the yen but appreciated 4.0% against the kiwi and yuan. The U.S. Treasury designated China to be a “currency manipulator” even though all three criteria for such are not being met, and anecdotal evidence such as found in changes in China’s FX holdings suggest that if anything Bejing has been intervening to limit its currency’s slide.

10-Yr Yield 08/30/19 07/31/19 Chg in Aug
U.S. 1.50% 2.02% -52 Basis Points
Germany -0.70% -0.44% -26
Japan -0.28% -0.16% -12
U.K. 0.48% 0.61% -13
Canada 1.16% 1.48% -32
Switzerland -1.09% -0.81% -28
CB Policy Rate 08/30/19 07/31/19 Chg in Aug
Fed funds target 2.00/2.25% 2.00/2.25% 0 Basis Points
ECB deposit rate -0.40% -.040% 0
BOJ policy rate -0.10%- -0.10% 0
BOE Bank Rate 0.75% 0.75% 0
Swiss 3M Libor -1.25/-0.25% -1.25/-0.25% 0
FX 08/30/19 07/31/19 Pct Chg in $
EUR/USD 1.0992 1.1062 +0.6%
USD/JPY 106.24 108.81 -2.4%
USD/CHF 0.9897 0.9946 -0.5%
GBP/USD 1.2167 1.2151 -0.1%
AUD/USD 0.6755 0.6837 +1.2%
NZD/USD 0.6306 0.6560 +4.0%
USD/CAD 1.3313 1.3205 +0.8%
USD/CNY 7.1565 6.8811 +4.0%
Equities 08/30/19 07/31/19 Chg in Aug
S&P 500 2926 2980 -1.8%
Nasdaq 7963 8175 -2.4%
Djia 26403 26864 -1.7%
Dax  11939 12189 -2.1%
Nikkei 20704 21522 -3.8%
Ftse 7207 7587 -5.0%
Canada TSE 16442 16407 +0.2%
Swiss SMI 9896 9919 -0.2%
Commodities 08/30/19 07/31/19 Chg in Aug
Oil, $ per barrel 55.10 57.96 -4.9%
Gold, $ per ounce 1519.10 1424.90 +6.6%

Copyright Larry Greenberg 2019.  All rights reserved.  No secondary distribution without express permission.

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