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Protrader – August 2019 Market Wrap

//Protrader – August 2019 Market Wrap

XJO Down 225
Hope Springs Eternal

 

After hitting an all time high on the 30th of July, the XJO in line with international markets began the month of August in a state of Trump tweet induced panic, being belted the first four days of the month, and dropping 360 points with consecutive red days before recovering, moving into the middle of the month.

Then things got worse, once again thanks to Trump’s tweets, combined with a bond yield curve inversion on the 15th the Australian market endured it’s biggest single day loss in 18 months, tumbling 187 points and wiping out $63 b of value in the course of the day.

However after the 15th shock, and with time to reflect over that weekend, the market stepped back and then focused on fundamentals, not existential “what if’s” , and for the remainder of the month regained 200 points whilst consolidating and tentatively closed back below the August 6th level, finally closing at 6595.

Naturally such volatility and uncertainty also had a huge impact upon commodities and the underlying related sectors with both the Gold index XGD and Energy/ Oil Index XEJ experiencing wild fluctuations throughout the month.

 

KEY ECONOMIC DATA

  • AUD sank to its lowest level since Fed 2009
  • ASIC sues NAB over home loan intro fees
  • Aus unemployment @ 5.2%
  • Telstra reported 40% fall in full yr profit
  • RBA left rates unchanged @ 1%

DOW JONES IND AVG 26,879 – 26,403: Down 476

Trump tweets oblivion, and beyond

 

DJI 12 MONTH CHART

Following on from the July 31st blood bath fuelled by further tweeting from Trump, the DOW started the month by falling 760 points which was the biggest single day drop for the year, with the negative market direction continuing until the 5th.
Strong fundamental data and surprisingly robust corporate earnings settled the market allowing a degree of support, that was leading into a rebound, until an inverse yield curve formed (where 10 yr bond yields dropped below 2 yr bond yields), ushering panic of a potential world wide recession which lead to a 3% /800 point drop in a single session.
However the markets wild volatility resurfaced as a series of strong fundamental data, once again lifted the market, and it looked like a rally back above 26500 was forming, until Trump struck again, tweeting the market into panic and dropping 600 points, or 2.4% on the 23rd.
For the remainder of the month, a rinse and repeat pattern emerged with the final two days seeing a strong gapping up, and the market finishing just below the level that was settled on August the 2nd: 26403

 

Key Economic Events and Indicators

  • Multiple Inverse yield curve events occurred throughout August
  • US Housing Starts tumbled
  • Walmart & Target beat market expectation
  • Continued robust US jobs data
  • China announced stimulus package
  • Tensions rose in Hong Kong
  • US Manufacturing lowest growth since 2016
  • US Unemployment steady @ 3.7%
  • US PMI expanded at slowest pace in 3 yrs

 US / China Trade War : Staring into the Abyss

The month of August saw the US – China trade dispute descend into a full scale War , with China particularly taking steps that not only dramatically escalated the stakes, but took both countries to the edge of the abyss.
As can be seen by the chart below, for the first time in history, China allowed it’s currency the “Yuan /RMB” to fall below the 7/1 USD barrier. Which many in the international community thought would never occur.

The benefit to China of this action was multifaceted, as it:

A) nullify both the existing and future tariffs that the US may place on Chinese goods.
B) In turn makes US imports more expensive as it now cost more RMB to buy US products than before.
C) Is a very clear /unmistakable waring that China is prepared to play hard ball.
D) Cleverly subtle as China don’t have to announce that they are placing “Tariffs” on US imports.

The reasoning for this unheralded action by the Chinese authorities is the very serious economic issues that are now developing in China, which are directly related to the US tariffs.

 

 

As can be seen from the chart above, despite China announcing yet another stimulus package in August the authorities felt that it simply wasn’t enough.
Both China’s industrial production and domestic retail spending are at all time lows, and from an economic structural perspective, China may be concerned that she is near a tipping point of no return.

With desperate times, China made the decision to take desperate actions.

OIL PRICE UPDATES: Trade uncertainty continues to play havoc.

WTI Crude – Dropped $3.48: $55.58 – $55.10

As with the stock markets the oil market price movement for the month was completely centred around the Trade War narrative, being buffeted between hope and despair, which caused wild fluctuations.
The month started with oil dropping the most in a single session in over 4 years, down 8%, however after recovering, following another Trump tweet, fell another 3% on the 6th.

As the month wore on, geopolitical issues and fundamental data directed price movement although US /China trade sentiment still induced volatility, with oil finishing the month with a final day $1.65 drop to close at $55.10.

Key Oil Price Influences

  • US Oil exports surged to a monthly record 3.16 bpd.
  • US imposed further sanctions on Venezuela
  • US Crude Inventories fell by more than expected
  • Euroil (16 European Nations) Oil inventories fell more than expected
  • Saudi Arabian Oil fields attacked by Iranian back Yemeni Houthi rebels
  • OPEC oil output rose first time this year, due to increase in Iraq and Nigerian production