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Riders On The Storm.

Right, so the storm wasn't supposed to come until next month.

Right, so the storm wasn’t supposed to come until next month.

September is when we’ll all watch helplessly as lawmakers and central bankers determine the fate of the assets we own.

But as it turns out, August wasn’t a walk in the park and if it was, it was a rainy one and not everyone knew they were supposed to pack an umbrella.

This month, the summer lull was shattered by nuclear brinksmanship “like the world has (almost) never seen”, a hurricane “like the world has (almost) never seen,” and some Presidential rhetoric “like the world has (definitely) never seen.”

Basically, a lot of shit “like the world has never seen.”


And so, we were all riders on the storm(s). For U.S. equities, things turned out largely ok – better than “ok” for the Nasdaq:


Here’s a fun two-pane with USDJPY and 10Y yields which shows you the action around three notable episodes of risk-off sentiment in August:


And here’s a similar set with the VIX and gold:


U.S. yields fell the most since Brexit:



The broad dollar very nearly eked out its first monthly gain since February, but ultimately…


The DAX has fallen for three months in a row, and if you want to know one reason why, look no further than the following set of visuals:


Long story short: German equities held out as long as they could against the rapidly appreciating euro, but they finally rolled over:


Bunds were on pace for their best month since February helped along by expectations that the euro’s seemingly unstoppable ascent will keep the ECB in the game for a bit longer. 10Y German yields fell their lowest since Sintra this week:


High yield spreads widened out amid the geopolitical turmoil and it’s worth noting that junk continues to underperform IG, a trend that will likely continue as idiosyncratic risk from stressed sectors weighs.


The pound – beset by Brexit uncertainty and slow growth relative to the rest of the G7 – had its worst month since October:


Emerging market stocks have now risen for eight months in a row.


As far as the ETFs go (i.e. as far as how most people are trading it), EEM has outperformed SPY for six consecutive months in the longest streak of outperformance since February 2005:


Make no mistake, this is starting to get stretched and it’s heavily dependent on the trajectory of the dollar (remember, the Fed matters more than the ECB for EM).

“A potential Fed balance sheet run-off, which has been compared to 2013 taper tantrum, could shock emerging markets,” Institute of International Finance analysts Robin Brooks, Peter Nagle and Jonathan Fortun write in a new note, adding that “a drop in oil prices, appreciation of USD vs majors and rising political uncertainty will also weigh on EM assets.”

Particularly notable in EM this month was the yuan, with CNY logging its best month against the dollar since the revaluation in 2005:


Oh, and if you were wondering how accurate folks were with their predictions this month, here’s Bloomberg’s Michael Regan with an amusing anecdote:

It’s interesting to peruse the guesstimates from Bloomberg users on WHIS for what the month-end levels of various macro assets would be. The month-end median whisper estimate for the SPX was 2,443 — about 1.25% below where it’s trading now, with 15 minutes left in the month. The 10-year yield’s median estimate was 2.295% — ie ~17 basis points above where we are. The estimate for EURUSD ($1.1822) was almost right on the nose. In other words, the stock-market guessers were too pessimistic and the bond-market guessers were too optimistic. And the FX guessers were pretty darn accurate! So, wisdom of crowds? Only in the currency market, it seems, at least for this month.

Now buckle up for September – the clouds are gathering anew.



1 comment on “Riders On The Storm.

  1. Right on. The last half of August is when the currents begin to accelerate. as we head into the rapids of September. October is then the month when the boat capsizes, usually nearer to the last half of October.

    If this where a canoe ride, we are now at the moment when the bow starts yelling to the stern:
    “paddle faster!, paddle faster!”

    September 1 now just hours away. The world will seem a much different place within 60 days.

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