04/09/2019 - Markets: Monthly Commentary August


Trade conflict causes skid marks

In August, the trade conflict between the US and China escalated again, causing a slowdown in economic indicators. Meanwhile, the bond rally continued and gold became more expensive.

In August, the stock markets consolidated with a few exceptions (Denmark, Canada and Mexico). The German share index DAX fell by -2.05%, the European share index Stoxx Europe 600 by -1.63%. In the USA, the S&P 500 index fell moderately by -0.56%, and Asian stocks lost -6.37% measured by the Hang-Seng index (Hong Kong). The global stock index MSCI World fell only slightly by -1.00% - all index data on a euro basis.

The trade conflict between the USA and China escalated again in August: US President Donald Trump surprised with the introduction of a tariff of 10% on Chinese goods not yet affected in the amount of approx. 300 billion US dollars import volume as of September. China reacted by temporarily banning imports of US agricultural products and allowed the Yuan to depreciate by 4% to just over USD 7 - the highest monthly loss in 25 years. The US then accused China of currency manipulation, but postponed the introduction of the 10% tariff for various product groups until December. China accused the US of supporting the riots in Hong Kong and announced higher tariffs on US imports worth USD 75 billion, which in turn prompted the US to increase import tariffs. Only at the end of August did the announcement of new talks send a signal of easing tension.

The trade conflict also left its mark on economic indicators: In the USA, the purchasing managers' index fell below the 50 mark for the first time since 2009, indicating a contraction of the economy. Consumer confidence and industrial production also declined. In China, industrial production, imports and retail sales shrank. However, the Caixin Purchasing Managers' Index rose slightly to 49.9 points.

In Europe, the focus was on the British government's Brexit plans. Prime Minister Boris Johnson is heading for a hard Brexit on 31 October. The EU refused to renegotiate the Brexit agreement, and Johnson ordered the British parliament to take a five-week progogation until mid-October - the longest since 1945 - in order to prevent possible ricochets by Brexit opponents and opponents of a hard Brexit. The British economy contracted by 0.2% in the second quarter.

The German economy suffered from the burdens of its largest trading partners China (1.), USA (3.) and Great Britain (5.) and fell by 0.1% in the second quarter, mainly due to weak exports, which were 8.0% below the previous year's results. Industrial production also declined, and the ifo Business Climate Index reached 94.3, its lowest level in seven years. However, incoming orders rose and the purchasing managers' indices in Germany and the euro zone also improved slightly to 43.6 and 47 points respectively.

Economic concerns and weak stock markets ensured that the rally on the bond markets continued. The yield on 10-year German government bonds fell from -0.44% to -0.70% in August, reaching an all-time low of -0.73% in the meantime. In the USA, two-year US government bonds yielded higher than 10-year bonds for the first time since 2007. Falling yields caused the gold price to rise further. The precious metal was sought after as a safe haven and rose from 1,428 to 1,529 US dollars per troy ounce.


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