For what is typically a quiet summer month, markets exhibited elevated volatility in August. This was led by the tweet by President Trump in the beginning of the month that the U.S. would impose an additional wave of tariffs on Chinese goods, and subsequent Chinese retaliation, both of which took markets by surprise.
Global stocks fell on the worries of an escalation to the trade war, while bond yields fell in the U.S. and U.K., leading to fixed income gains across portfolios. Gold posted strong gains in the month, functioning as a “safe haven” asset class during times of market worry.
All this came during a backdrop of strong consumer spending in the U.S. and weakening manufacturing data, attributed to a slowdown due to trade war tensions.
In Europe, economic data continued to be weak, particularly from Germany which seems to be on the brink of a recession; European GDP grew at only 0.2% during Q2 and Germany’s GDP contracted -0.1% during the same period.
In the U.K., Boris Johnson has not been able to provide clarity around Brexit, which continues to weigh on the British economy.
The month ended with a more reconciliatory tone from both the US and China, with stocks recovering some of the losses for the month. Our model portfolios performed as expected, with losses in equities offset by gains in gold and sukuks.
Source: Reuters/Eikon as of August 2019. For illustrative purposes only. Returns are for model portfolios only and actual client experience may vary.