Developments surrounding Iran remained the dominant geopolitical driver of capital markets in August as well. Early in the month, hopes of progress in the talks between the US and Iran, together with temporarily easing oil prices, lent support to market sentiment. At the same time, market breadth remained uneven. While broad indices held up comparatively well, interest-rate-sensitive technology stocks in particular – many of which had rallied strongly beforehand – proved more vulnerable to rising yields and geopolitically driven inflation concerns.
US Treasury yields came under intermittent upward pressure over the course of the month, not least because the market's concerns extended beyond the near-term inflation picture (3.4% in July, following 3.5% in June). Structural questions increasingly came to the fore: the US interest burden, long-term debt sustainability, and the growing supply side of the Treasury market. The rise in yields therefore reflected not only monetary policy uncertainty, but also a higher premium demanded by the market for fiscal risk and for the threat of a gradual erosion of the US dollar's value.
Market participants increasingly positioned themselves for a tighter monetary policy stance from the ECB after the summer break, reflecting the fact that inflationary pressure in the euro area is not easing sufficiently. Euro area inflation rose to 3.3% in August, up from 2.9% the previous month. The ECB will also have fresh projections at hand after the summer break, which are likely to prove decisive for the future direction of monetary policy.
In government bond markets, US and German yields moved in the same direction month on month. Ten-year US Treasury yields rose by 1 basis point to close the month at 4.75%. Ten-year German Bund yields climbed 11 basis points, from 3.21% to 3.32%. The yield on ten-year Italian government bonds rose by 13 basis points to 4.15%. Corporate bonds likewise presented a consistent picture. Yields on euro-denominated investment grade bonds increased from 3.74% to 3.87%, while yields on US dollar-denominated investment grade corporates rose from 5.46% to 5.49%. In the high-yield segment, yields on US dollar corporates fell by 14 basis points to 7.27%, while euro-denominated paper was unchanged at 6.06%.
The gold price rose by 10.1% and closed at USD 4,448 per ounce. The US dollar weakened slightly against the euro, ending the month at 1.1615.
Legal information
This is a marketing communication. It is intended solely for information and marketing purposes. The statements it contains have been prepared with due care and on the basis of the information available at the time of preparation; they reflect the assessment of DJE Kapital AG at the time of publication and may change at any time. No guarantee can be given as to their accuracy, completeness or timeliness. The information does not constitute individual investment advice, a personal recommendation or a binding offer to buy or sell financial instruments, or to make use of any particular financial service. | DJE Kapital AG, Pullacher Straße 24, 82049 Pullach, Germany.