Cameron Brandt, EPFR Director of Research, reflects on how he sees August unfolding:
August is usually a fairly tepid month which much of the US and European financial establishment off on holiday, US Congress in recess and no major elections scheduled.
I think that will be true for the first part of the month, but the second half will see maneuvering based on perceptions of the Fed’s willingness to hike rates again after its meeting in the final week of September. The market is assigning odds of over 90%, which will add to the pressure on risk assets and sectors such as real estate and consumer goods.
I’ll be watching oil prices. With sanctions being reapplied to Iran, Saudi oil traffic being targeted by terrorists based in Yemen, Venezuela continuing to melt down and both Mexico and Brazil cooling (again) to foreign investment in their energy sectors, oil prices could resume their climb towards $80 a barrel. That keeps the pressure on central banks to raise rates or risk inflation taking off.
The other focal point is China, because (a) its economy is slowing – something that often has an exaggerated ripple effect on all EM assets – and (b) it is at the epicenter of the Trump tariff tantrum.
Daily data indicating that redemptions from Europe Equity Funds may be bottoming out. August may be the month that flows for UK vs the rest of Europe really separate as investors have time to focus on the lack of progress on a Brexit agreement.