Markets in Review: August 31, 2018

The seven points which caught the market's attention

1. Global markets continued to grind higher over the week. They continue to ignore geopolitical risks for the most part, but this may not last. All US markets reached new record-highs over the week, and the ASX got to within four points of a new 10 and a half-year high.
2. There was a sharp decline in late intraday US trade on Thursday, when – during an interview with Bloomberg TV – the President stated: “If they don't shape up, I would withdraw from the WTO.” The US withdrawing from the World Trade Organisation would be the biggest change to global trade in the post-World War era. The WTO was founded by the US; for it to leave would be the biggest threat to global trade stability.
3. US trade representative Robert Lighthizer moved the US closer to enacting the proposed $US200 billion of tariffs on Chinese goods on Thursday, with the President backing his proposal. The first tranche could be put in place as early as the third week of September.
4. The Turkish lira experienced very high levels of volatility late in the week, to be back at its lowest level since it collapsed on August 13. Meanwhile, Argentina's central bank increased its official interest rate to 60 per cent (highest in the world) in an attempt to protect its faltering Argentinian peso. Emerging markets are clearly starting to feel the pinch of a changing macro environment, and could be a flashpoint in the coming cycle.
5. There are growing signs that fund managers are beginning to realign their strategies for 2019. It appears they are looking to value as opposed to growth. However, the consensus is still to be well overweight growth, but there is an inflection point coming.
6. Gold fell back below $US1,200 an ounce, after rallying $US32 an ounce the week before, as emerging market risk relaxed. Oil continued to climb on supply concerns, and is now up over 22 per cent for the year to date.
7. The Aussie dollar fell back below 73 cents on a very weak private capital expenditure (CAPEX) release. Quarter-on-quarter (qoq) CAPEX fell 2.5 per cent versus an expected increase of 0.6 per cent qoq, as both mining and non-mining spending fell in relatively equal measures. FY19 intentions were revised higher year-on-year, but are still well below FY18, as resource spending continues to collapse, while non-mining flattened out.

(The caveat here is that the CAPEX numbers do not capture education, health and public infrastructure spending.)