Exposure rates of the Dorval Asset Management Range – 9th August 2019

The week kicked off with the renminbi’s decline against the dollar, as it moved beyond the symbolic 7-to-the-dollar threshold (cf. chart 1), hot on the heels of Donald Trump’s surprise announcement at the end of last week that he would slap 10% border tariffs on the remaining $300bn in Chinese imports into the US. The Chinese authorities claim that they did not stage-manage this depreciation, but the underlying message is fairly clear – the battle of wills between the two heavyweights is far from over.

This renewed tension triggered a fresh phase of consolidation on the international equity markets, with the HSCEI index of Chinese companies listed on the Hong Kong stock-market revisiting January’s lows.

Meanwhile, economic stats were not very encouraging with a dip in the US services ISM to 53.7, marking a two-year low and fuelling fears that sluggish showings in the manufacturing sector will spread to services.

Against this backdrop, the central banks stepped up their moves to address growing risks of an economic slowdown and tackle the threat from the renminbi’s depreciation, with rate cuts from New Zealand, India and Thailand.

Alongside consolidation on the equity markets we also saw a very robust rally on the bond markets, particularly in the US where the 10-year hit 1.60% (cf. chart 2). This very low level reflects concerns from the market, with the most pessimistic observers now expecting the 10-year to hit 0% over the quarters ahead.

The central banks’ insurance cuts provide a relative degree of support for the asset markets, but they will not be sufficient to solve the confidence issue that is currently affecting industry and dragging down investment in production.

Against this backdrop, we prefer to take a cautious stance.


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