Friday August 21

Stocks suffer heavy losses as concerns build on China’s slowdown and currency devaluations around the world. The S&P500 falls 3.2% to 1,970 and the Dow loses 3.1% to 16,459. The Dow officially enters correction territory with a 10.3% fall from it’s latest peak in May and the S&P500 has lost 7.7% since that time. A China PMI fell to 47.9 which indicates contraction and is the lowest level since March of 2009. A similar gauge in the US came in at 52.9 which while still indicating expansion still missed estimates. With growth in China losing momentum, demand for goods and commodities around the world decreases. In addition China’s recent renminbi devaluation seemingly forced several other emerging markets to devalue their currencies which further contributes to the strength of the dollar. This makes US goods more expensive for foreigners to buy which decreases earnings expectations for US companies. To reflect short term uncertainty and concern $31.7bn has flowed into money market funds. The 10 year yield fell to 2.05% and gold rose 4% on the week as investors sought haven assets.

Alexis Tsipras seeks to minimize the power of his critics within the Syriza party with his call for a snap election. Tsipras has high domestic approval ratings, and he hopes to validate his actions in office with the election in late September. He is expected to win the election, and hopefully the radical faction of the Syriza party will be remoed from office. This will result in a stronger coalition government and more political stability within the governing party. Some Syriza members have already started their own new political group called Popular Unity.
Gold regains its status as a haven asset as equities suffer a serious selloff. Recently gold seemingly has lost it’s status with investors as a risk aversion asset to hold in times of risk and uncertainty. In spite of international and geopolitical risk over the last several years, gold has not performed well. However with the recent equity selloff gold has experienced inflows. The metal reached $1,168 today and is up 8.5% from a low which was reached on July 24. With the probability of the Fed tightening in September falling, gold is becoming a more attractive holding even though it offers no dividend or yield compared to an equity or fixed income security.
Oil and commodity prices fall along with stocks as China’s slowdown greatly reduces demand for energy and raw manufacturing materials. China is the world’s biggest oil consumer so any decrease in their prospects will have direct impacts on oil markets. WTI dipped below $40 and Brent reached a low of $45.10. WTI has now fallen for eight consecutive weeks which is the longest streak in 30 years. Data earlier this week which showed that inventories unexpectedly rose further magnify the supply and demand dynamics that are sending prices down.
Friday August 21

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