Markets are heading into September with hopes for an interest rate cut from the Federal Reserve, the Fed meets Sept. 17 and 18, and it is expected to cut rates by a quarter point though some bond strategists say it could cut by a half percentage point if the economy softens or markets are highly volatile.
On the trade front investors were buoyed by conciliatory comments from the Chinese commerce ministry confirming that trade talks with the U.S. remain scheduled for September. A spokesman for the Ministry of Commerce told reporters that China had no plans to respond to the White House’s latest tariff escalation, although he also remarked that “China has ample means for retaliation.”
The prospect of Britain crashing out of the European Union seems increasingly likely as time goes on. Prime Minister Boris Johnson continues to affirm that the UK will leave the European Union “come what may” on the agreed date. Stopping a no-deal Brexit became more difficult after Mr Johnson announced he would be suspending Parliament – known as prorogation – for five weeks in September and October. This will cut the number of working days MPs have in Parliament to try and stop a no deal Brexit, with critics claiming it is a deliberate ploy by the prime minister to cut them out. The prime minister hopes to press for concessions on the Irish backstop from the European Union if it is confronted with a no-deal outcome.
Italy’s centre-left Democratic Party and the populist 5-Star Movement overcame bitter differences and agreed to make a formal attempt to form a new coalition government, avoiding a return to the polls for the second time in less than two years. Markets welcomed the new coalition on hopes of a more stable government and smooth budget negotiation between Italy and the EU.
Hong Kong was bracing for another weekend of mass demonstrations as activists protested across the city, after a wave of arrests of prominent pro-democracy activists and politicians on Friday. It is Hong Kong’s 13th straight weekend of protests, originally triggered by a bill that would allow extradition to China.
For the week, global equity market performances were positive. In the U.S., the Dow Jones (+3.02%), S&P 500 (+2.79%) and Nasdaq (+2.72%) indices were all in the green. In Europe, the Euro Stoxx 50 (+2.77%) and FTSE 100 (+1.58%) indices ended the week positively, with Asian markets softer: Nikkei 225 Index (-0.03%) and the Shanghai Composite Index (-0.39%).
Market Moves of the Week
The JSE closed in positive territory on Friday, with the Johannesburg All-share index gaining 1.56% to 55,259 points. All three of the major sectors were positive with the resource sector (+4.44%), industrials (+1.32%) and financials (+2.30%).
The rand was the third-worst performing emerging-market currency in August, behind the Mexican and Argentinian pesos. The currency suffered through much of August, sliding nearly 6% on concerns about the US-China trade dispute, global-recession jitters and fears over Eskom.
Statistics SA is set to release GDP for the second quarter on Tuesday, with economists expecting an expansion of at least 2.5%, after a contraction of 3.2% in the first quarter.
Chart of the Week
The S&P 500 fell 1.8% for the month of August, its worst performance since May. Rising recession worries and trade headlines moved the market in both directions. September is historically a more volatile month than August, since World War II, the average move for the S&P for all months is a gain of 0.69%, but the average September move is negative 0.54%.
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