A quick review of the issues and events driving the markets this past week... and what's on tap for the week ahead.

Weekly Market Snapshot

August 31, 2015

"Plus ça change, plus c'est la même chose"

— Jean-Baptiste Alphonse Karr, Les Guêpes, January 1849 (In English: "The more things change, the more they stay the same")

The week in review...


Volatility: Shake, rattle and roll Explanations abound, but the general consensus was that this week's global market volatility was sparked by disappointing economic news from China. Whether or not that news justified the reaction can be debated, but between low commodity prices, currency devaluations and the prospect of a Fed rate rise in September, there was no shortage of worries to choose from.

The impact was worst in China itself, with the Shanghai Composite Index sliding -18.74% between the previous Friday's close and the intra-day low of August 26,¹ bringing the market's slide since its June 14 high to -40.38%.

However, the US market was jolted to a degree not seen since October 2011, with the VIX spiking at 53.29 on Monday August 24 – after nearly 7 months below 20, and nearly a year since its previous spike in October 2014.

Technical analysts noted that the US markets clearly dropped into the correction zone of a greater-than-10-percent fall, dropping 12.46% between the intra-day high on July 20th and the intra-day low reached at the open of trading on August 24. Technical analysts believe a 10% "correction" can function as letting off steam in a strong but somewhat over-bought market; only time can tell how this principle will apply this year.


Growth: Good news confuses US GDP for 2Q was revised upward significantly, throwing another curve at the Fed. The annualized rate of 3.7% was better than even the most optimistic forecasts; the increase was due to hikes in nonresidential fixed investment and private inventory investment, both signs of optimism by industry about future growth. The growth took place during one of the biggest drops in oil industry capital investment on record. According to one estimate, growth would have been 4.5%, strongest since the start of 2006, but for the retrenchment in the oil field.

The Fed, facing a decision about hiking the fed funds target rate, was widely believed to be reconsidering a September hike due to market instability. But the robust growth of the US economy may force yet another rethink.


Growth: Change is hard Moving toward a more market-based economy has been an oft-stated goal of the government. A key part of that effort is arranging for prices, especially interest rates, to be influenced by the dynamics of supply and demand than policy objectives alone. That's especially challenging when parts of the system, like interbank interest rates, are more clearly regulated and disciplined than others. Case in point: real estate development and unregulated income-oriented investment products, where price bubbles prompted the authorities to step in with new regulations... which in turn may have encouraged Chinese investors to turn instead to the stock market.

Notably, one area of relative success in making the cutover is currency. The People's Bank of China (PBoC) made a big move in that direction on August 10, setting its daily "fixing" of the exchange rate of the yuan based on the previous day's open-market prices. A large part of the motivation was getting the yuan more widely accepted as a global means of exchange.

The results: three days of currency price drops, viewed by most as a policy devaluation. But after those moves, the fixing method appears to be doing well at matching prices with the supply and demand for the currency.

It's the 4% devaluation, plus the move toward market-based rates, that got the attention of world financial markets – and set off a round of fear-induced trading, culminating in the wild worldwide market moves of Aug 24. The fear: devaluation was a sign of desperation, rather than the opposite. The challenges to China's growth have been widely known and freely acknowledged by the government for at least a year, but the new, wider audience hadn't yet been lulled into complacency by the steady stream of news.

¹ Source: Bloomberg, as of Aug 27, 2015, 6:30 PM ET

Signs of the times:

Ukraine Secures Debt-Relief Deal, Finance Ministry Says – Wall Street Journal

ECB Getting Aggressive on Buying Asset-Backed Debt – Bloomberg

Emerging market debt steers clear of turbulence – Financial Times

Chinese Margin Debts Shrink by $156 Billion as Trades Unwind – Bloomberg Business

Sources: Bloomberg, Wall Street Journal, Financial Times, New York Times, Xinhua, China Daily, Market News International, Deutsche Welle.

...And the week ahead:

GLOBAL ECONOMIC CALENDAR: August 30 – September 5, 2015



Other Americas

Europe, UK, Africa, Mideast

Japan, Asia Ex Japan & Pac Rim

Aug 30

Puerto Rico debt restructuring proposal




Aug 31



Eurozone: CPI

Hong Kong: retail sales
India: GDP

Sep 1

Automakers US vehicle sales for August, manufacturing PMI, construction spending

Canada: GDP

Eurozone: manufacturing PMI, unemployment
Germany: unemployment
Italy: GDP
UK: manufacturing PMI

Australia: current account
China: official manufacturers PMI

Sep 2

Worker productivity, employment survey, factory orders, 70th anniversary, end of World War II (V-J Day)

Brazil: industrial production


Australia: GDP

Sep 3

Trade deficit, services PMI, job cuts, jobless claims

Canada: trade balance

European Central Bank: rate decision
services PMI
UK: services PMI
Turkey: consumer prices

China: military parade marking 70th anniversary of the end of World War II (surrender of Japan)

Sep 4

Unemployment rate

Canada: unemployment

Germany: factory orders
France: consumer confidence


Sep 5






The People's Bank of China (PBC or PBoC) is the central bank of the People's Republic of China with the power to control monetary policy and regulate financial institutions in mainland China.

The Shanghai SE Composite Index is an index of all stocks (A shares and B shares) that are traded at the Shanghai Stock Exchange.

The Chicago Board Options Exchange (CBOE) Volatility Index (VIX) is a measure of market expectations of near-term volatility as conveyed by S&P 500 stock index option prices.

Technical analysis uses changes in prices and trading volume to determine sentiment and potential future trends. Practitioners are often referred to as technicians.

The Federal Reserve system (the Fed) is responsible for the formulation of a policy designed to promote economic growth, full employment, stable prices, and a sustainable pattern of international trade and payments.

The federal funds rate (fed funds, fed funds target rate or intended federal funds rate) is a target interest rate that is set by the FOMC for implementing U.S. monetary policies. It is the interest rate that banks with excess reserves at a U.S. Federal Reserve district bank charge other banks that need overnight loans.

Gross Domestic Product (GDP) is an economic statistic which measures the market value of all final goods and services produced within a country in a given period of time.

The European Central Bank (ECB) is responsible for the monetary system of the European Union (EU) and the euro currency.

Purchasing Managers Indexes (PMI) measure the manufacturing and services sectors in an economy, based on survey data collected from a representative panel of manufacturing and services firms.


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Will China's official growth rate fall to 6 percent by the end of 2015?


Will China's official growth rate fall to 6 percent by the end of 2015?

Yes: Economic reform measures will take their toll on growth
Yes: Demographics and urban labor shortage will constrain demand
No: New monetary and fiscal stimulus will restore rapid growth
No: Recovery in the US, Europe and Japan will more than make up for slowing domestic demand

Previous month Poll

When will the Fed raise the Fed Funds target rate?

Not until 2016