Stocks slide as trade war woes escalate on threaten tactics between US and China. Further, Trump’s tariff threat on Mexico added to risk averse investor sentiment creating risk averse market sentiment influencing dovish market activity.
Summary: Nothing much has changed in global stock and forex markets since last Friday. Dovish influence stemming from Trump tantrums continue to flame recession woes which in turn pressure market bulls preventing risk assets from staging solid recovery price action. Macro data update from China had little impact on activity in Asian markets. Escalating tensions between China and US is now branching away from just trade war and moving towards China and American military presence in Asia crushing hopes for swift resolution of trade deal between two nations in upcoming g20 summit. This caused Asian equities and benchmark indices to bleed profusely as trading session began for the week. While geo-political issues were already pressuring investor sentiment and affecting broad based risk appetite in the global market, German Chipmaker Infineon’s move to takeover U.S. peer added additional pressure in European tech sector causing European markets to see high level dovish price action. A look at top 30 forex pairs show dual tone picture on price action but in reality all major pairs are seeing range bound action with bias in favor of bears, USD and risk aversion.
Precious Metals: While neither gold nor silver has displayed any sharp upside moves on safe haven demand and risk averse investor sentiment in recent past, they have maintained a relatively stable pace of positive growth. In particular, gold has managed to breach critical resistance at $1300 handle and scaled new 2 month highs despite costly USD continuing to limit access to upside move. Given dovish market outlook in immediate and near future, gold is likely to remain above $1300 handle across this week.
Crude Oil: Crude Oil price declined earlier in the day resuming Friday’s decline over trade war woes. But it has since managed to erase all early loss and trade positive in US crude oil benchmark index WTI. During European market hours, the WTIUSD is trading with strong positive bias up more than 1% on the day as lack of progress in trade war front brought supply concerns and middle east tensions back into center stage of investors focus.
USD/JPY: The pair is seeing a tightrope act today amid conflicting market cues. Sell-off in forex market and US Greenback own safe haven image from recent past continue to support USD in risk averse scenario. At the same time, given clear forecast for escalating trade tensions and prolonged trade war between major global economies, Japanese yen is also gaining demand owing to its nature as default safe haven investment vehicle. This has resulted in both sides of currency pair waging war for gaining upper hand on control of price action/momentum.
On The Lookout: Geo-political issues are currently at the center stage in investors focus. While Sino-U.S. trade war continues to escalate with each passing day, so far it’s just threaten tactics as neither side has taken serious retaliatory actions. In the meantime, war for control over economic supremacy seems like it is also branching out into military conflicts. Further, US President Trump continues to throw tantrums which are causing more headache for global economy and allied nations. To prevent Trump from acting on his whims and imposing punitive tariffs on Mexico, a delegation of senior representatives from Mexico will travel to Washington today to discuss about illegal immigration issue. Meanwhile, focus now shifts to Donald Trump’s three day visit to UK amid times of high level crisis in internal politics and Brexit mishaps. On the release front, focus is now on ISM Manufacturing PMI data release from US calendar ahead of Wall Street market opening for the week.
Trading Perspective: Caution owing to President Trump’s visit to UK and geo-political woes which add bearish pressure to the market are likely to put pressure on both Forex and Equity/Derivative assets during North American market hours today. High level of risk aversion seen in investor sentiment in likely to result in trading practice which will likely be visible in form of dovish Wall Street activity.
US Market: Trump’s threat of tariff on Mexico, militaristic branching of Sino-U.S. trade war, risk averse investor sentiment in global market have led to US stocks and index futures trading in the international market ahead of Wall Street opening seeing dovish price action. This is clear sign that Wall Street is likely to open in red. Meanwhile investors will focus on updates over talks with Mexican delegates and ISM Manufacturing PMI for short term profit opportunities.
EUR/USD: The pair has managed to trade with positive bias across Asian and European market hours despite prevalent risk averse investor sentiment. While escalating trade war woes capped gains of Euro giving the USD an upper hand, German, French and European manufacturing PMI’s which were in line with investor expectations helped cap USD’s momentum post which EURO has traded with some level of positive bias. Traders now wait for US ISM Manufacturing PMI for short term profit opportunities.
USD/CAD: The pair is trading with dovish bias since start of the day despite most major risk assets and forex pairs seeing dovish price action. As Crude Oil price recovered in the broad market, CAD bulls gained strength dragging the pair into downward price action. However, escalating trade war woes and broad based strength of USD on support from US T.Yields and safe haven demand helped limit downside price move. Traders now wait for US ISM Manufacturing PMI for short term profit opportunities.