After the whipsawing escalations in the U.S.-China trade war that hit equity indices throughout August, both parties toned down the rhetoric this week, officials telling that trade negotiating teams were maintaining effective communication. In any case, this allowed stocks to partly recover from the severe losses suffered at the beginning of the month.
The S&P500 therefore finished the week up 2.79% (-1.8% MTD), almost in line with the Nasdaq (up 2.72%, down 2.6% MTD) while the Dow rose 3.02% (-1.72% MTD). Europe performed as well as North America (MSCI EMU up 2.83% WTD). Emerging markets were also up (MSCI EM: +1.10%) in the wake of the previous week. By contrast, Japanese and Chinese shares closed slightly lower (Nikkei down 0.03%, Shangai composite down 0.39%).
All the S&P sectors posted positive returns but it is worth noting that the poorest performers over the last weeks were the best ones this time (industrials: +3.60%, communication services: +3.43%, financials: +3.20%, information technology: +3.12% more specifically), and vice versa (real estate: +1.80%, utilities: +1.76%, consumer staples: +1.61% lagging behind now).
That being said, the apparent cooling of tensions between Washington and Beijing must not hide the fact that they have just imposed additional tariffs on each other’s goods as from September 1, even though a wide array of business organisations have recently warned of the detrimental impact of tariffs on their sales.
Despite this relatively calm period just before the Labor Day weekend, we should bear in mind that the equity skew which reflects the demand for protection against extreme losses in stocks is still as high as the level observed in Q4 2018. In addition, interest rates continue to decline with the U.S. 10-Year yield falling to 1.50% (vs. 1.52% last week) and the German 10-Year yield dropping to -0.70% (compared with -0.68% a week ago).
To put it bluntly, risk aversion has not gone away.
Find the full report here: https://www.trackinsight.com/weekly-flow-report/2019-08-30/global