A familiar theme played out in August as the US corporate earnings season wrapped up and an escalation in trade wars stepped in to fill the vacuum. The first day of August saw US President Donald Trump tweet that $300bn of Chinese imports not already subject to tariffs would be subjected to 10% tariffs from the beginning of September. China responded by halting US farm imports and devaluing its currency and global stocks tumbled 5% in the first few trading days of August. The rest of the month was a rollercoaster, which saw markets rally as Trump agreed to delay some tariffs until mid-December before China rattled markets again with a threat of additional tariffs on US imports. However, China flip-flopped late in the month, suggesting that the retaliation would be delayed. The net result was a monthly drop of 2% for the MSCI World Index, only its second negative month in 2019, with the MSCI Emerging Market Index again lagging – down 4.9% for August.
Emerging market currencies also had a torrid month with the Argentine peso leading the decliners – down 26% for the month as incumbent President Mauricio Macri looks likely to lose out to his populist rival Alberto Fernandez in Argentina’s elections, possibly reversing the hard-fought reforms Macri has implemented since taking over the presidency in 2015. The Brazilian real, South African rand and Mexican peso were down 8%, 5.6% and 4.5%, respectively, for August.
The flight to safety saw US 10-year bond yields drop over 0.5% to 1.5% in August. US 10-year bond yields have now more than halved since November 2018 when they reached 3.2%. The value of negative yielding bonds reached $17trn during August (up from $8trn at the start of the year). The flight to safety also boosted haven currencies, the Japanese yen and the Swiss franc, while falling yields boosted high-yielding stocks, with the S&P 500 utilities, consumer staples and real estate sectors the only ones to end the month higher.