August was a difficult month for global risk assets, as developed and emerging market equities retreated (led by Argentina’s -50% move), global interest rates moved sharply lower as yields on the US 30 year bond hit a record low, the US yield curve inverted further, the US dollar strengthened (as the Chinese Yuan hit a 10 year low), the oil complex weakened, and gold rallied. The amount of global debt with negative yields reached a new record in August in excess of $17 trillion, with 30% of global investment grade securities bearing negative yields. At the Jackson Hole Economic Policy Symposium, Fed Chairman Powell kept future interest rate cuts on the table, but highlighted the Fed’s limits in countering economic uncertainty stemming from trade disputes. China’s urban unemployment rose to 5.3% in July, the highest level since reporting began. Amidst Brexit uncertainty, UK and German GDP contracted by 0.2% and 0.1% in the second quarter, respectively. In the Asia Pacific region, central banks in India, New Zealand, and Thailand cut interest rates in August. The US jobs report showed that 164,000 jobs were added in July (the 106th consecutive month of job creation), the unemployment rate held at 3.7%, the labor force participation rate increased to 63%, average hourly earnings rose 3.2% from a year earlier, and the total labor force hit a record high of 163.4 million.
Developed market equities were mostly lower in August (see page 8), with the biggest losses in Hong Kong (-8.2%), the UK (-4.2%), and Japan (-3.2%). US small caps underperformed large caps, with the Russell 2000 down 4.9% and the Russell 1000 down 1.8% (see page 3). Utilities (+5.2%), Real Estate (+4.9%), and Consumer Staples (+1.8%) were the best performing sectors in August; Energy (-8.1%), Financials (-4.8%), and Materials (-2.8%) were the worst performing sectors (see page 2). Large cap value (-2.9%) underperformed large cap growth (-0.8%) in August (see page 3). Emerging market equities were mostly lower in August (see page 9), with gains in Mexico (+5.3%) and India (+0.8%), and the largest losses in Argentina (-50.4%), China (-3.9%), and Thailand (-3.1%).
In currencies, the USD Index was higher (+0.4%) in August (see page 10), with the biggest losses against the USD in the New Zealand Dollar (-3.5%), Norwegian Krone (-2.8%), and Australian Dollar (-1.6%); the Japanese Yen (+2.4%) moved higher against the USD. Emerging market currencies were mostly lower against the USD, with gains in the Thai Baht (+0.9%), and the largest losses in the Brazilian Real (-8.1%), South African Rand (-5.6%), and Mexican Peso (-4.6%).
The US interest rate curve shifted lower and inverted further in August (see page 12). 10 year rates closed the month at 1.50%, down from 2.01% at July month end. US investment grade and high yield spreads widened in August (see page 13).
In commodities, the GSCI index was down 5.6% in August (see page 11), with gains in Precious Metals (+7%), and losses in Livestock (-8.7%), Agriculture (-6.8%), Energy (-6.6%), and Industrial Metals (-1.5%). Within individual commodities, Silver (+11.1%), Gold (+6.5%), and Platinum (+6.2) saw the biggest gains, while Lean Hogs (-10.4%), Gasoline (-9.6%), and Corn (-9.5%) saw the biggest losses.
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