Global weekly: A most turbulent week

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After a week that started with a Black Monday, markets recovered surprisingly well to levels from at or above the start of the week. ABN AMRO Group Economics continues to expect an acceleration of global growth in the fourth quarter, generated by higher industrial activity and consumer demand.

Currency outlook

A potent cocktail of China, emerging markets and commodity fear escalated sharply on Monday. The late losses on equity markets in the US on last week’s Friday and the lack of action by the Chinese authorities over the weekend did not bode well. Currencies of emerging-market commodity exporters and Asian currencies showed substantial losses mirroring the sell-off in commodity prices. European and US markets followed. The VIX, or volatility index, surged and credit spreads widened.

The deterioration resulted in a general flight into safe haven assets. The Japanese yen was the clear outperformer in currency markets. Furthermore, US Treasury yields fell, with 10-year US Treasuries dropping below 2%, though German Bunds did not benefit, as their yields remained flattish.

The euro strengthened sharply against the US dollar during the turmoil on equity markets on so-called Black Monday. The dollar was hurt because of the pricing out of Fed rate hikes this year. But if there were to be a further escalation of market turmoil towards a real panic, there would be a strong dollar rebound as investors swarm to the most liquid assets.