Anyone who has been disconnected from the news in August and sees the stock market index results at the end of the month will conclude that it was a quiet month for the stock markets, with no relevant news. Nothing could be further from the truth. It was a month of high volatility and important news that could impact the new price..
At the beginning of the month, the Japanese stock market fell by almost 20% in just three days. The volatility spread to all the world’s stock markets. Although by the end of the month (as of Wednesday, August 28, the date of this writing), the pre-fall levels had more than recovered.
These declines have highlighted the latent risk posed by the estimated $20 trillion in to trade yen. That is, loans in yen at very low interest rates by investing these amounts in other fixed and variable income markets. Any sign of strengthening of the yen could trigger a new episode of volatility by forcing those who are indebted in yen to unwind part of their positions.
Thus, any interest rate decision by the Bank of Japan or the Fed that strengthens the yen poses a risk to market stability.
In addition to the threat of a Japanese stock market crash, other relevant news emerged during August:
- Powell anticipated the Fed’s start of rate cuts in September and a shift in focus from inflation to a possible excessive cooling in the labor market.
- Tensions between Iran and Israel have increased significantly. In the first weeks of August, an imminent Iranian attack on Israel was announced, but this has been postponed for the time being. Israeli attacks on Lebanese territory in recent days highlight the risk of the war spreading beyond Gaza.. For the moment, the crude oil market seems to be ignoring this risk.even recording declines in August for Brent and WTI (West Texas Intermediate).
- According to a report published in the WSJ, Ukraine is responsible for the attack on the NordStream gas pipeline. As a result, Germany will no longer pay money to Ukraine from its budget. It will do so only against Russian assets frozen on German soil.
- The (undeclared) war between Russia and Ukraine has taken on a new dimension by attacking and conquering Russian territory in Ukraine with NATO weapons and support. The longer the war lasts, the greater the probability of an accident and the greater the economic uncertainty for Europe due to its high energy dependence.
- The UK has seen widespread anti-immigration riots with thousands of detainees. The UK government has restricted freedom of speech on social media. It does not look like the situation will be resolved by the end of August. Another obstacle to the recovery of the British economy.
- R. Kennedy Jr. joins Trump’s candidacy. This move could be decisive, especially in the most contested states (Swing States), where Kennedy has a vote estimate of between 3% and 5% and could tip the scales in Trump’s favor.
- Ford becomes the first major automaker to cancel new electric vehicle launches, focusing on hybrids. Other companies like Volkswagen, BMW or Mercedes have not yet made the decision to cancel new models, but they agree that electric vehicle sales forecasts are not being met.
- The WHO has declared an international health emergency due to monkeypox (MPox). It is inevitable to recall the sad memory of the Covid pandemic and the draconian measures adopted that led to the ruin of millions of businesses. For now, the problem is concentrated in a small number of African countries, where 535 people died from the disease in the first seven months of the year; the same number of deaths from tuberculosis every four hours in Africa.
Despite the good performance of the stock market indices, the month of August was not calm nor free of news that could have an impact on the year that is beginning.
