September 5, 2017
The last week of August was a tumultuous one for the people of Texas as Hurricane Harvey hurtled through the region leaving unprecedented rainfall (up to 50 inches) and devastation in its wake. With damage estimates at $38 bn and mounting the catastrophe impaired around 17% of the US refining capacity and pushed gas prices up by over 10% in certain areas. The funds necessary for the relief bill are likely to put further pressure on the debt ceiling and the necessity of holding a vote to raise it, which will likely have to be brought forward by a few days. Chatter regarding the debt ceiling as well as a pervasive sense of some weakening of GOP support for the President have led to a more jittery market environment as summer drew to a close.
In the aftermath of Charlottesville there seemed to be a chill in relations between President Trump and the business community. In the past week this seems to have extended to members of the GOP, who have split with him publicly on issues of immigration (the proposed repeal of DACA) and the pardon of controversial Ex-Sheriff Joe Arpaio.
For the month, despite late jitters, equity market performance saw Emerging Markets outperform developed markets with the MSCI EM index returning 2.3%, to bring the ytd performance to over 28%. Gains were led by Brazil, Russia and China, with India seeing some weakness. Frontier markets were even stronger, while the Japanese market saw some weakness (-1.3%) as did South Korea. The DJ Stoxx 600 lost 0.8% on the month, while the FTSE 100 added 1.7% (most likely due to the stronger Euro). EM bonds were universally strong, and the index added 1.3% to end the year up 13.4% in USD terms, while elsewhere credit also saw meaningful support, particularly in investment grade.
Government bonds all saw strong demand over the month of August, while gold rose by 4.1% (bringing year to date gains to 13.5%) and silver by 4.6%, reflecting the strong performance of these safe haven assets as noted above. Commodities were otherwise slightly weak (CRB Index -1%) as the oil price gyrated (US WTI lost 5.9% for the month).