The nervous cracks appearing in the market at the end of July broke with a vengeance in the opening few days of August. The speed of moves in the VIX and USDJPY was startling to many and on par with some of the biggest in history. However, the initial momentum, blamed on JPY carry trade unwinds, quickly stabilised and then reversed by mid-month leading to the oft used tag “flash crash”. The market was quick to price in emergency cuts and had many pundits urging the Fed to intervene like so many other instances when the “put” was expected. However, the reaction of policy makers was very measured, but explicit, when Fed Chair Powell all but gave the green light for a lowering of the official target at the September Fed meeting in his closing remarks at the annual Jackson Hole symposium. Although the magnitude of the move is split between a 25bp or 50bp move, it has certainty, as even traditional hawks like Daly have added their approval. The focus going forward is clearly the labour side of the dual mandate referencing Powell “We do not seek or welcome further cooling in labor market conditions”. Thus, the upcoming NFP will take on heightened importance. Elsewhere, the first cut in the cycle was seen by the BoE and RBNZ during the month, with a second from the Riksbank.
The US 10y closed the month 12.74bps lower and 5s-30s swap was 15.4bps steeper.
