August, always a month insidious for the financial markets, frequently upsets savers and economic operators with sudden shocks. However, there is a more rational explanation behind the recent turmoil. The combination of lower liquidity and the amplifying effect of the psychology of especially small investors can magnify the fluctuations, creating a climate of unjustified panic.
After years of records and stellar performances, a setback was inevitable. The recent corrections are a natural response to a market that has seen staggering profits, particularly in the big-tech sector. However, August has often proven to be a particularly turbulent month for financial markets. Here you are some of the moments more significant di crisis that have hit global markets this month.
August 5, 1971: the end of the convertibility of the dollar into gold
August 15, 1971 marks a historic date with President Richard Nixon's announcement of the end of the convertibility of the dollar into gold. This event, known as the “Nixon Shock,” ended the Bretton Woods system and led to an immediate volatility on the stock markets. Global stock markets were rocked by uncertainty over the new system of flexible exchange rates, causing wild swings in stock and currency values.
August 17, 1998: the Russian crisis
Il August 17th, 1998 represents a crucial date for the Russian economy and global financial markets. On that day, after having maintained a rigid exchange rate which was now unsustainable due to the internal economic crisis and the fall in oil prices, the Russia devalued the ruble e he declared il default on sovereign debt. This event triggered a series of global repercussions, fueling financial instability and nervousness in emerging markets.
August 2007: Subprime mortgage crisis begins
In 2007, the first signs of difficulty in the subprime mortgages began to emerge. These signs of financial stress culminated in September 2008 with the bankruptcy of Lehman Brothers, which is considered one of the triggering events of the global financial crisis. This event highlighted the extent of the problems in the banking and financial system and led to a series of bankruptcies and government bailouts around the world.
August 5, 2011: the European sovereign debt crisis
In the summer of 2011, Europe faced a serious sovereign debt crisis which heavily affected European government bonds and stock markets. Concerns were focused on Greece, Italy and Spain, fueling growing volatility in the markets. On 5 August 2011, in this context of tension, the president of the European Central Bank, Jean-Claude Trichet, sent a letter to the Italian government. Italy, then, had seen its own spread reach 575 points basis, due to fears about the sustainability of the debt and the economic difficulties of the peripheral states of the Eurozone. In the letter, Trichet urged the adoption of reforms and austerity measures to ensure economic stability. The market financial, yes vulnerable due to the lower liquidity typical of August, he resented strongly of this situation, accentuating the concerns and turbulence of the period.
