Stocks wavered between down, then up, and then down, finally finishing off by 0.44% in the USA and 1.10% outside the US. US stocks got hammered on Monday, falling about 3%, after the Chinese yuan broke through the psychologically important level of 7:1 versus the US dollar. A beggar-thy-neighbor mindset seems to be spreading. World leaders should know better, mercantilist policies have not worked in the past and won’t work this time. Stocks did gain on Tuesday, Wednesday, and Thursday when there was no further escalation in the currency/trade wars and there was actual hope (again) that maybe the countries would come to some sort of agreement. Stocks went into Friday up for the week, but Trump seemed to indicate that China may not show up for a September trade meeting, turning stocks down by 0.7% on the day and off by 0.44% for the week.
Treasury yields fell off a cliff. The 10-year dropped by 28 basis points to 1.74% for the week and fell below 1.6% during the week, the lowest level since 2016. The two-year fell by 9 basis points and the spread is now only 11 basis points. The 3-month/10-year curve is inverted by 26 basis points. The yield on the S&P 500 exceeds the yield on the 10-year by about 1/4%.
The exogenous shock of the trade war, now rolling into a currency war, represents the kind of unique factor that raises the chances of negative unintended consequences.