SEPTEMBER: Investors seek safe havens in August

Risk aversion amongst investors rose during August, boosting demand for perceived “safe-haven” assets amid mounting concerns over the deteriorating relationship between North Korea and the international community. Meanwhile, the US was left counting the human and financial cost of Tropical Storm Harvey, which battered the US Gulf Coast.

  • Japan’s economy expanded at a better-than-expected rate of 4% YoY

  • President Trump’s relationship with the US business community deteriorated

  • The UK and EU embarked on their latest round of Brexit negotiations

Traditionally, August is supposed to be a relatively quiet month for financial markets. Investor sentiment in August 2017, however, was undermined by terrorist atrocities in Barcelona, and by an increasingly combative rhetoric from North Korea that culminated in the firing of a missile over Japan. Concerns over the deteriorating relationship between North Korea and the international community led to heightened demand for perceived “safe-haven” assets during the month: the price of gold surged to an eleven-month high and reached its highest level since President Trump’s election in November 2016.

Elsewhere, Tropical Storm Harvey hammered Texas and the US Gulf Coast. In addition to the human cost of the disaster, investors were assessing the potential impact on short-term economic growth. Oil production and refining activity was disrupted during the storm, driving up the oil price.

In the US, President Trump’s relationship with the US business community deteriorated during August as high-profile company leaders deserted his Manufacturing Council in the wake of unrest in Charlottesville, Virginia. The US economy expanded at an annualised rate of 3% during the second quarter of 2017, compared with an earlier growth estimate of 2.6%. The Dow Jones Industrial Average Index edged 0.3% higher over August as a whole.

“The euro rose to its highest level against the US dollar since January 2015”

Uncertainties surrounding Brexit are hampering the UK’s economic growth, business investment, and wage growth, according to Governor of the Bank of England Mark Carney. Meanwhile, at the latest round of Brexit negotiations, EU Brexit negotiator Michel Barnier complained of a lack of “decisive progress”. The FTSE 100 Index rose by 0.8% during August.

The euro rose to its highest level against the US dollar since January 2015 during August, driven up by concerns over the impact of Tropical Storm Harvey in the US, and by the strengthening European economy. The eurozone’s economy expanded at an annualised rate of 2.2% during the second quarter. The euro’s appreciation generated some apprehension about the impact on corporate earnings in the region. Over August, the Dax Index fell by 0.5%, while the CAC 40 Index edged 0.2% lower.

Japan’s economy notched up six consecutive quarters of positive expansion, posting unexpectedly strong annualised second-quarter growth of 4%. The country’s economy grew by 1.5% in the first three months of the year. During August, the Nikkei 225 Index fell by 1.4% as large exporters bore the brunt of a stronger yen.