The first week of September has seen risk-sensitive assets outperform, despite poor PMI data for August suggesting that global growth will slow further in Q3. Markets have seemingly taking some comfort from reports that trade talks between the US and China may resume and from the diminishing likelihood of a “no-deal” Brexit in the UK after Prime Minister Johnson lost three key parliamentary votes.
August was a torrid month for high-yielding emerging market currencies but they are up about 1.5% versus the Dollar in the past week. Similarly, the flat-lining Australian Dollar is up 1.8% while the Kiwi Dollar, which had been on a downtrend, has rebounded 2% while Sterling is up 1%. The S&P 500 has rallied nearly 2% to its highest level since end-July.
Conversely, the Dollar – which on Monday hit its strongest level since early January 2017 in trade-weighted terms – has shed nearly 1% in the past week. The safe-haven Swiss Franc is down 0.3% to the bottom of a one-month, 1% wide range. However, there has been no relief for the Euro which has depreciated 0.8% to a one-month low as markets continue to up their expectations that the ECB will have no choice but to ease monetary policy.
