Equity performance leadership was extremely narrow in August, with the US proving resilient and leading the global charge. In contrast, most other global bourses declined during the month. Canadian stocks retreated amid ongoing uncertainty regarding the future of NAFTA after failed negotiations in late-August. Meanwhile, European shares traded lower as both emerging market angst and a lack of progress on the Brexit-front weighed – while the trade dispute resurfaced after President Trump unleashed some harsh rhetoric towards the European Union. Finally, emerging market bourses were pummeled as disarray in both Argentina and Turkey sparked fears of global contagion at the same inopportune time that trade tensions have intensiﬁed.
In ﬁxed income markets, treasuries advanced, with haven demand spurred by the collapse in emerging market assets and renewed trade tensions that completely overshadowed signs of building pricing pressures. Meanwhile, the failure of the US-Canada trade talks sent Canadian bond yields lower – though the short-end remained well supported by some healthy growth and inﬂation results that have given the Bank of Canada the green light to raise interest rates this fall. Finally, European peripheral spreads widened on concerns that Italy’s populist coalition’s plans for aggressive spending policies will collide with European Union ﬁscal rules.
In currency markets, the greenback strengthened against most of its global peers as the tenuous geopolitical backdrop reverberated through the marketplace and buoyed safe haven currencies. In contrast, lingering questions about the future of NAFTA weighed on the Canadian dollar, while emerging market currencies posted their ﬁfth monthly loss as the rout in the Turkish lira and Argentinian peso fueled fears of contagion across the wider emerging market space. The exception was the yen, which was boosted by safe haven ﬂows and speculation that the Bank of Japan may scale back its asset purchases going forward.
Finally in commodity markets, gold failed to obtain a safe haven bid and declined in August, marking its ﬁfth straight month of losses. Gold was pressured lower owing to recent strength in the US dollar and the Federal Reserve’s plans to continue raising interest rates, reducing the appeal of non-interest bearing assets like bullion. In contrast, crude oil staged a comeback as sanctions on Iranian oil stoked concerns for supply constraints at a time when American stockpiles and production are slowing – which helped to allay concerns that the trade war will stiﬂe global demand.