Markets In-Review: Yuan-Ignited Turmoil Continues

■ Emerging Markets’ currencies continue to bleed heavily

■ Oil prices tumble to six-year low

■ Global equities suffer sell-offs

■ S&P500 drops to lowest since Oct 2014

■ Gold prices surge 4.1% in week as investors seek safer havens

While most phenomena in nature tend to dissolve over time, every once in a while the flapping of a butterfly’s wings does generate increasingly more rabid outcomes. Last week’s market behavior, to say the least, falls under the latter. After igniting the turmoil, the Yuan actually strengthened by 0.04% vs. the USD, during the week. Seeing a standstill following the previous week’s close to 3% depreciation. The spatial effects from this depreciation, on the other hand, are still kicking.

Momentum did seem to have preserved from last week, for some markets. Emerging markets’ currencies continued to depreciate, rapidly. This includes the Turkish Lira which weakened some 3% vs. the USD and USD/ZAR with a 1.13% increase. Oil prices lost close to 5% during the week, to USD 40.45 – marking this their lowest level since March 2009. Naturally, this decrease in oil prices also weighed on energy exporters’ currencies – USDRUB surged no less than 6.5%.

…and investors fly away from risky assets

While the movement in E.M. can be mostly attributed to momentum, capital circulation now indicates that market participants are decisively moving away from riskier assets. The S&P 500 (SPY) dropped no less than 5.77% during the week, slashing through its 200 day moving average, to its lowest since October 2014. The Nasdaq composite Index (QQQ) lost no less than 6.78% during the week, over 3.5% of those on Friday. Indications for U.S. investor concerns of the market may be found at the CBOE VIX, AKA “fear gauge”, which more than doubled during the week to a level of 28.03 – its highest since October 2014. European equity, unsurprisingly were also in red territory, with the DAX falling 7.83%, to its lowest since January, and the FTSE 100 losing more than 5.5%. In Japan, the Nikkei 225 lost close to 5.3% during the week, to levels unseen since May.

It should be further noted, that markets were fast to interpret news was on the far downside. For example, much of Friday’s losses in global equity followed August’s China Caixin Purchasing Managers’ Index merely achieving a level of 47.1 points, far below the analyst expectations of 48.2. The market turmoil also led to increasingly more market participants expecting that the Fed will avoid hiking rates on its upcoming September 17th announcement. Likewise safe haven asset prices are gaining. Yields on the U.S. 10 year bond, which move inversely to its price, have decreased close to 0.16% during the week. Similarly, gold prices surged 4.1% during the week, marking the largest weekly gain for the metal of kings since January, to USD 1160.77 per oz.