At the start of the month the White House confirmed plans to increase tariff rates (from 10% to 25%) on $200 billion of Chinese imports and the news sent equity markets across the globe lower. China reciprocated and threatened to slap a 25% tariff on $16 billion of U.S. goods. Set against this headwind was a strong earnings season, particularly in America, which helped the US market extend its lead as the best performer year to date, helped by further strength in the dollar. Trade tensions and a strong greenback had a particularly bad impact on Turkey, which was already struggling with a weak currency and rising inflation. The situation was worsened by a war of words between Turkish president Erdogan and Donald Trump, which led markets down further and, briefly, a wobble in Turkish banks and talk of possible contagion into European financials. The Turkish lira ended the month 25% down versus the dollar, but still managed to outperform the Argentinian peso. Following President Mauricio Macri surprise request for further help from the International Monetary Fund, the peso ended the month 28% lower.
Closer to home the Bank of England increased interest rates to 0.75% in a unanimous 9-0 vote in favour of a hike, which is the highest level in the aftermath of the financial crisis. Elsewhere, new ‘Brexit’ secretary Dominic Raab resumed talks with Brussels over the UK’s exit from the European Union, with some commentators gloomy over the prospect of sorting out a deal before the EU leader’s summit in mid-October. The shadow of Brexit continues to overhang UK assets and markets struggled throughout the month. Despite this, there were some bright spots for UK investors including Coca-cola’s blockbuster bid for Costa Coffee which shows international investors are willing to take advantage of weak sterling if it suits them.
All this occurred against the backdrop of relatively low summer trading volumes (which can exaggerate market movements) and in the absence of key decision makers, both in the public and private sector. As such August moves are not generally seen as a good indicator of market direction and despite some market turbulence global economic indicators remained positive in most major markets.
Alex Brandreth
Deputy Chief Investment Officer