US stocks ended a dour month on a positive note, with their first weekly advance since July as investors managed to stretch out their optimism for an end to Donald Trump’s trade war with China.
The gains came too late to offset malaise in August overall, as an escalation in trade tensions between the world’s two biggest economies and concerns about the outlook for US interest rates sent investors running to the relative safety of bonds and bolt-holes like gold.
The S&P 500 advanced 2.6 per cent since last Friday in what marked the equities benchmark’s first weekly advance since the final week of July and its biggest weekly rise since early June.
The index was down for August, like most other major global equities benchmarks, with a 1.9 per cent drop that was its largest monthly decline since May.
Bonds were big winners. US Treasuries staged a large rally this month as investors reacted to the Federal Reserve’s interest rate cut at the end of July. The yield on the benchmark 10-year Treasury has shed nearly 52 basis points so far this month — the biggest decline since January 2015 — to trade at about 1.4961 per cent.
That is lower than the yield on the two-year Treasury — which is down about 37bp at 1.504 per cent for the largest monthly decline since October 2008 — and has resulted in an inversion of the so-called yield curve. Instances when yields on short-term debt exceed those on longer-term bonds are seen as predictors of impending economic slowdowns.
Corporate bonds were on track for their best monthly return in a decade as investors hunted for higher yields in a world of low — and sometimes negative — interest rates.
Concerns about the economic outlook prompted investors to pile into another classic havens.
Gold eased 0.4 per cent over the past five sessions to end a four week winning streak. It has been a big winner this month, with a 7.3 per cent gain.
There has been plenty of action in foreign exchange markets as well.
China’s renminbi dropped 3.8 per cent in August for its largest monthly decline in more than a quarter of a century. This week, the British pound tumbled below $1.22 after Prime Minister Boris Johnson set out plans to suspend Parliament in a move that could stymie MP’s hopes of blocking a no-deal Brexit, while Hungary’s forint weakened to a record low against the euro.
The US dollar remains on a tear. The dollar index, tracking the greenback against a basket of peers, was up 1.2 per cent this week to a 27-month high of 98.82, the largest weekly advance since early July. That brought gains for August to 0.3 per cent, but followed a whopping 2.4 per cent rise the previous month.