The month of August has been anything but favorable for the Wall Street, thanks to the re-escalation in Sino-US trade tensions. All three key U.S. indexes are in the red this month. SPDR S&P 500 ETF (SPY - Free Report) (down 2.9%), SPDR Dow Jones Industrial Average ETF (DIA - Free Report) (down 3%) and Invesco QQQ Trust (QQQ - Free Report) (down 3.4%) — all have lost heavily in the past month (as of Aug 28, 2019). Let’s take a look at the key happenings in the ETF world (read: Top and Flop ETF Areas of August).
Trade Tussle: Crests & Troughs
The month saw a spate of higher import tariffs announced between the two superpowers — The United States and China. China levied a round of retaliatory tariffs on U.S. goods worth $75 billion in the range of 5-10%, which is set to be enacted on Sep 1. This move by China came after the U.S. government’s announcement on Aug 1 that it is imposing a 10% tariff on $300 billion worth of Chinese goods. Though Washington delayed some of those tariffs on Aug 13 stating that those will be enacted in two tranches on Sep 1 and Dec 15, respectively, the declaration prompted China to counteract.
After markets closed in the United States on Aug 23, Trump said that he would “raise tariffs on $250 billion worth of Chinese exports to 30% from 25% in Octoberand that the tariffs kicking in next week will now be 15% rather than 10%.” The first lot of those tariffs will be introduced in September (read: Consumer ETFs in Focus on Fresh Tariff Threats).
However, signs of a receding trade war were noticed at the end of this month with China refraining from immediately hitting back against the latest U.S. tariff increases. China is also mulling over a meeting with U.S. representatives next month. All these caused a lot of volatility in the market.VelocityShares 1x Long VSTOXX Futures ETN has gained about 24.2% in the past month.
Gold & Silver Rush
Rising trade spats and the safe-haven rally pushed up precious metal prices. Also, the Fed and several other global central banks are acting dovish. This boosted non-interest-bearing assets like gold and silver. SPDR Gold Shares (GLD - Free Report) and iShares Silver Trust (SLV - Free Report) have added about 7.1% and 10.8% each in the past month (read: Precious Metal ETFs Gain From Tit-for-Tat Tariff Action).
Argentina Debt Crisis
Argentina’s country risk intensified to levels not seen since 2005 after the government announced plans to protract maturities on about $100 billion in debt inducing a fear of a massive financial crisis. Global X MSCI Argentina ETF (ARGT - Free Report) has lost about 31.4% in the past month (as of Aug 29, 2019).
Near 19-Year High U.S. Consumer Confidence
The Conference Board confirmed that its consumer confidence index for August was 135.1, which surpassed economists’ estimate of 129.5 polled by Reuters. However, the latest reading dropped from an upwardly revised 135.8 in July. The index was previously reported to be 135.7 in July. ETFs likeVanEck Vectors Retail ETF (RTH - Free Report) and iShares U.S. Home Construction ETF (ITB - Free Report) may thus benefit from this trend(read: ETFs to Buy as Americans' Confidence Nears 19-Year High).
Slight Curb in Second-Quarter U.S. GDP Growth Data
The U.S. economy decelerated a bit more than initially thought in the second quarter as the Commerce Department’s second reading shows a 2% annualized rate, down from the 2.1% rate estimated last month. The economy expanded at a 3.1% rate in the first quarter, however.
Nonetheless, this slight downtick in the growth rate should not leave any material impact on the stock market as the latest conciliatory tone in the US-China trade-related rhetoric should keep the markets charged up. For example, post signs of the subsiding trade spat, one of the most trade-dependent sector ETF iShares PHLX Semiconductor ETF (SOXX - Free Report) has inched up about 2.4% on Aug 29.
No-Deal Brexit in the Cards
With British prime minister Boris Johnson requesting the Queen for the Parliament’s suspension for a crucial five-week period ahead of Brexit, chances of a no-deal Brexit are pretty high on Oct 31.
In this scenario, the UK would instantly leave the European Union (EU) with no agreement. Like other analysts, we also believe that higher import taxes and transport delays would likely result in higher inflation. Per BBC, the Bank of England governor Mark Carney already noted that in a worst-case scenario, the UK shopping bills could rise 10%.
The pound came under pressure after the news of parliament suspension, thus putting Invesco CurrencyShares British Pound Sterling Trust (FXB - Free Report) under the spotlight.
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