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LCP Investment Summary August 2019
Posted on 3 September, 2019 by Administrator
Global equity markets fell 1.1% in August (in € terms). The month opened with markets falling after President Trump announced new tariffs on Chinese imports effective from 1st September. China duly responded as the month progressed announcing new tariffs on U.S. oil, auto and agricultural imports. The U.S. also described China as a ‘currency manipulator’ following a sharp fall in the value of the Chinese yuan against the US$. It remains unclear when, or if, talks will resume although signs were more positive by month-end, which encouraged investors and markets rallied.
Global economic growth remained generally subdued with U.S. Federal Reserve Chair Powell saying that they will ‘act as appropriate’ as regards possible further interest rate cuts. However, he remains under pressure to act with President Trump tweeting ‘My only question is, who is our bigger enemy, Jay Powell or Chairman Xi?’. The U.S. ‘yield inversion’ (where 10 year yields are lower than 2 year yields) rattled markets as it is often seen as a recession indicator, although there are other technical & structural issues that are also forcing down longer-term interest rates.
Although some Eurozone economic data released in August was more positive, investors still expect the ECB to announce some policy changes during September. German economic growth shrank in Q2 with its large car manufacturing industry feeling the pressure of trade issues, new emissions standards and a slowdown in Chinese consumer demand (nearly 25% of all cars sold in China are German).
Longer-dated eurozone bond prices rose 6.4% in August, with the yield on the AAA Eurozone 15+ Year Index falling to -0.31% by month-end. The Euro Broad Sovereign 10+ Year Index rose by 5.6% with its yield falling to 0.44%. The demand for ‘safe haven’ assets continued with Germany issuing 30-year bonds (zero coupon) at a negative yield for the first time. Nearly $15 trillion of government bonds worldwide (25% of the market) now trade at negative yields.
Sample DC Schemes
Two of our sample Strategies rose due to the performance of longer-dated bonds