Market commentary: A tumultuous August for global shares

More than $5 trillion has been erased from the value of global shares in August as a series of negative influences combined to drive equity prices lower.

The first major concern which roiled markets in early August was the state of China’s economy, and the policies that its government undertook, devaluing the nation’s currency and creating an aura of uncertainty. To add insult to injury, this came at a time when typically volumes will be lower than during the remainder of the year, thus augmenting the negative impact due to the absence of bids.

The fears that China may be in worse shape than previously estimated collided eventually with investor worry about whether global growth can withstand higher U.S. interest rates. This wreaked havoc in financial assets with prices swinging for everything from equities and oil to havens such as the yen and bonds. Every asset class appeared to be on the cosh, as volatility and fear took centre stage.

This created pockets of opportunity for the astute, with large solid organisations such as Apple Inc. seeing its opening price levels up to 13 percent lower than its eventual close price as a consequence of an overreaction.

As the stories developed, and the global turmoil headlined the financial news websites and was also on the tips of the tongue of the average Joe, bets on a September Fed rate decreased dramatically, from around 60% down to 15% as the market (quite rationally) assumed that the Fed would wait until the current period of financial turmoil subsided.

Interestingly though, last week the probability have climbed  again after Vice Chairman Stanley Fischer said there is “good reason” to believe inflation will accelerate. This was perceived negatively by the market, and only fuelled more volatility amongst increased speculation.

This morning, markets in fact continued to move a leg lower with the DAX down 1.42 percent, the CAC 40 down 1.29 percent and the Euro Stoxx 600 down 0.6 percent as of this writing. In the fixed income space the 10-year German bund is trading at 0.717 percent, 2.2 bps tighter while the yields on Italy and Spain are at 1.908 and 2.057 respectively, marginally tighter.

In European high yield, the Energy sector appears to be leading a relatively flat morning, with the ITRX XOVER (an index indicating the spread on high yield bonds) unchanged at 323 after the recovery experienced last week where the index topped at 365.

Looking ahead now, catalysts to market movements are the elections in Greece, where the first set of polls released over the weekend suggest that support for Tsipras’ Syriza party is dwindling somewhat; China remains in the spot light with their current bout of aggressive policy behaviour and we also have a number of economic data releases which could impact markets.

This morning we have the August CPI reading for the Euro area whilst over in the US this afternoon we get the August Chicago PMI. On Thursday there is the ECB meeting where we expect some verbal intervention over recent events, while on Friday there are the August payrolls reading in the US amongst other key data.

This article was issued by Simon Psaila, Treasury Officer at Calamatta Cuschieri. For more information visit, www.cc.com.mt .The information, views and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri & Co. Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.