Brexit and the trade war between China and the US continue to be the major events impacting the markets and with both mired in uncertainty August could be summed up by the word volatility.
The US-China trade war has descended to the level of retaliatory playground games albeit with high stakes. Trump ratcheted up tariffs, China responded by doing the same, China trumped Trump by devaluing the yuan, Trump adopted an accusatory stance on Twitter calling out ‘unfair trade practices and currency manipulation’ and so it goes on. As of 1st September tariffs have been implemented on US$125 billion of goods imported from China including food products, electrical goods and clothing.
This sparring back and forth between the US and China does not sit well with investors because it jeopardises global growth. European Commission President Jean-Claude Juncker voiced concerns at the G20 summit in Osaka at the end of June saying ‘The trade relations between China and the U.S. are difficult, they are contributing to the slowdown of the global economy’ and in August Goldman Sachs upped the ante with a warning that the trade war could trigger a recession.
Certainly, the spat contributed to the fall of markets around the world, including the S&P 500, the Dow Jones and the FTSE, in August. In contrast, gold, always a safe haven in volatile times, rose by an impressive 8%. We can probably expect more of the same tit-for-tat antics from the US and China in September but maybe, just maybe, a truce will be called in October when high-level talks between the two countries are planned.
Brexit has not done markets any favours either. The uncertainty dragging on as British parliament splinters still further with PM, Boris Johnson, losing his majority, sacking members of his own party and Labour voting down his general election plan. Deal or no-deal? Extension or no extension? Referendum? General election? The options seem to be widening rather than narrowing and that makes for jittery investors. It’s really anyone’s guess how this will play out over the next few weeks so watch this space!
Investors will be disappointed with the recent market declines but before you sell all your stocks and join the gold rush remember that markets are cyclical and the downs are often followed by ups so toughing it out waiting for the rebound is more than likely the best option. Putting all your investment eggs in one basket, however shiny it looks, is definitely not a good idea. Keep it diversified!
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