The sell-off seen in global equity markets accelerated yesterday with the FTSE tumbling by more than 180 points and Wall Street posting its biggest single-day drop of the year. In fact the decline in the Dow Jones Industrial Average was the 6th largest in its history in terms of points lost. The seeds for the declines were sowed last week when the Fed delivered a less dovish message than investors had hoped for and Trump announced additional tariffs on China, but the straw that broke the camel’s back was a sharp drop in the Chinese Yuan, with the currency falling to its lowest level in a decade against the US dollar.
Gold hits 6-year high
The fallout was felt not just in equities but across all asset classes with traditional safe havens such as Gold, US bonds and the Japanese Yen all gaining with the precious metal hitting its highest level since 2013 this morning. There’s also been a notable rally in Bitcoin in recent sessions and while the rationale behind such a volatile asset being treated as a safe haven remains highly questionable, there has been a clear and concerted move higher since the Tariff news dropped. The Cryptocurrency has rallied 20% since Thursday evening and moved back above the $12000 mark once more.
More downside to come?
There’s been a bit of a relief rally this morning, aided by a slightly strong fix on the Yuan and an unexpectedly strong reading for German factory orders, but this recovery remains highly tentative at present. The recent surge in volatility has no doubt been exacerbated by light trading volumes, with August typically one of the quietest months of the year on this front due to vacations and annual leave. Having said that, the fundamentals have worsened considerably of late and even a move from both the Fed and ECB to an easier policy seems to have proven not enough to keep the year-to-date rally for stocks going. Of course, the situation could change quickly in the space of just one tweet, but the chances of an about turn from the US and Trump on trade appear pretty low at present.