"To the wise life is a problem, to a fool the solution". Marcus Aurelius

Developed equity markets stabilised around the globe over the past five days, even if it was a quiet week of trading due to the time of year. After two weeks of losses, the S&P 500 gained just under 1% on the week. Likewise, two weeks of sharp increases in the Vix index, reflecting an increase in investor concerns over Donald Trumps presidency and central bank actions, the index fell back to close the week just above 11. Not back to the record lows of a month or so ago, but possibly reflecting some fears receding.

Jackson Hole symposium was much anticipated as both Janet Yellen and Mario Draghi were speaking, in the end, there was little of anything new regarding indications on future monetary policy from either speaker. Both speeches were deafening in their silence on any new insights as to the path of monetary policy for the coming months. The strength of the euro, which has been a topic Mario Draghi has commented upon, rose further against the pound and the dollar on Friday. Janet Yellen’s speech focused more on a reflecting back over the 10 years since the financial crisis. Mario Draghi repeated his view that the global economy is “firming up”. Both speeches seemed also to have digs at Donald Trump. Janet Yellen on the dangers of repealing some of the regulations that had been introduced since 2008. Mario Draghi’s focus was more on the dangers of protectionism and inhibiting free trade.

US treasury yields remained little changed at the end of Friday, yields on the ten-year remains below 2.2%, but compare this to the yield on the German bund at around 0.5%, or the ten-year gilt at 1%, it remains far more attractive. It is, however, worth noting that despite the modest improvement in the economic data coming from the US economy in recent weeks the yield curve, which is meant to reflect expectations of economic growth has flattened further since the start of the month. The gap between the 2 and 10-year yield currently stands at 82 basis points. Trading below 50 basis points is considered a sign that the bond market is concerned of an economic slowdown or impending recession.

Looking to the week ahead, the UK has a bank holiday to look forward to, and for a change, the sun will be shining. The third round of Brexit talks starts this week. There appears to be little in the way of a way forward being found. Perhaps the summer holiday season has not helped however it does seem that progress starts to be made to move to the second stage.

Equity markets were also helped towards the end of the week by hopes that the much-anticipated tax reforms will once again become a focus of the Whitehouse. Later in the week, we get the release of the monthly Markit purchasing managers surveys. The Global Composite managers surveys have rolled over in the past months, equity investors will look to see if this trend continued in August. Other events this week will be the latest US employment data and the release of the 2nd estimate of US GDP.

Posted on August 27, 2017 .