Dog Days of Summer.

Just when the markets in the developed world thought that they had put Turkey behind them, the events that precipitated some of the dramas have come back to haunt markets. Turkey this time was not the catalyst. However, market angst was and that’s because of Turkey’s problems earlier in the week. Turkey found some aid today with Qatar announcing a $19 bio assistance package.

At this point it is worth noting that Greenspan some 20 years ago, commenting on global growth, made the observation that “it is not credible that the United States can remain an oasis of prosperity unaffected by a world that is experiencing greatly increased stress.” The problems that Greenspan was faced with all those years ago are not a lot different to those faced by Powell.

For many emerging markets, they now have to deal with higher U.S. rates (up some 50 bp for the year), a strong dollar and the 2 year at a decade peak of around 2.7%. Investors are starting to take note and appear to be doing some hedging.

Today started with a bit of a tech wreck and that followed weak Chinese data and disappointing results from the Chinese behemoth Tencent Holdings.

Strong retail figures failed to help the U.S. market. Macy’s beat estimates but was hammered with the stock falling 16% on the day. Markets are getting twitchy. Markets are now just starting to focus on geopolitical risks. And that’s something the algo traders have not been, that is focusing on geopolitical risks.

The Vix rose to 14.64 on fears relating to Turkey and concerns over a slowing Chinese economy.

At this point, it is worth noting that as of the 22nd August the U.S. bull market would become the longest in U.S. history post WW2. It is interesting to note that the divergence between the winners and losers has never been so wide.

Commodities are now moving – it appears – to a bear market with copper, in particular, heading that way. Crude oil slipped below $65 a barrel after the release of a report indicating that U.S. stockpiles have risen the most since 2017.

In the confusion of the days, bonds and rates were the bullies. Rounding up shorts and gathering momentum, bonds rallied amid real money manager buying. Blackrock was rumoured to have put on a massive flattener on the day buying a large amount of long bonds with the position taking $1.69 mio per point movement. The Philadelphia Fed’s Manufacturing Business Outlook Survey, an indicator of business activity, fell from 25.7 in July to 22 in August.

German bunds crumbled to the lowest for the month amid fears that Turkey’s currency crisis could spread. EM assets are currently besieged by a strong U.S. dollar and in a thin market movements are now exaggerated. The winner in the Turkish fiasco has been bunds and treasuries.

Market Recap.

Equities: The S&P fell 0.8%, the Dow fell 0.54% and the Stoxx 600 fell 0.5% while the Vix closed 14.78.

Currencies: The Bloomberg Dollar Index rose 0.2% and the Yen rose 0.4%.

Bonds: The ten-year closed around at 2.86%. The 2-year closed at 2.61% and the 30-year closed at 3.03%. The ten-year bund closed at 0.29% and the UK gilt closed at 1.228% and the OAT closed at 0.67%. The U.S. curve closed the day with the following closes 2/10 at 25 bp, 2/30 at 42 bp and the 10/30 closed at 16.8 bp. The U.S. 5-year closed at 2.735%.

Commodities: WTI rose fell 3.3% and Gold fell 1.7%. The Bloomberg Commodity Index fell 1.9% and copper fell 4%.

Bitcoin is trading around $6,075.

Aussie Market Today.

The bully on the day may well be bonds and in particular Govvies. Today looks set to be a risk off day so expect some movement in bonds if the overnight direction is to be believed.

Equities look set to disappoint as geopolitical pressure weighs heavily and Chinese data is a little weaker than expected.

The tariffs are starting to bite a little and markets are just starting to wake up to the problem.

Geopolitical risks remain high.