Equities & High Risk Assets Bleed on Risk Aversion Triggered by Recession Fears - The Industry Spread

Karthik Subramanian

Karthik Subramanian has been a professional trader and fund manager over the last 18 years. He is basically a software developer who made the transition to financial domain around 18 years back as the attractiveness of the financial markets proved too much for him. He lives in Chennai in India along with his wife and son. He began his career as a software developer in 1999 and then gradually moved into the financial industry as he began trading stocks in his pastime. He then moved into the financial markets full time and then shifted his focus to the FX markets due to the liquid nature of these markets. Since then, he has been trading FX diligently and his favourite pair are the EURUSD and EURJPY. Over the last couple of years, he has found blockchain to be of high interest and considering his background in software and finance, he has since assembled a team of highly talented developers who have since worked on a variety of projects like crypto exchanges and blockchain architecturing. Now, he balances his time between trading and commenting on both the FX and crypto markets. He has worked with many publications including FX Street and Finance Magnates, which has helped him gain experience and also recognition across the industry. He loves to write and this passion has helped him to reach out across the FX and crypto industry. Right now, he works on his pet projects in the FX and crypto industry and spends his time writing and managing his blockchain team and helping it to reach higher.

impact of trade war

Equities & High Risk Assets Bleed on Risk Aversion Triggered by Recession Fears

June 1, 2019

impact of trade war Risk Aversion

Trump tantrums affect market activity yet again with actions this time around likely to cause US markets to suffer sharp loss immediately. Recession fears likely to cap any prospect for gains in risk assets.

Summary: Asian market saw major assets on all key markets decline owing to fears of recession. US President Donald Trump’s threats to impose tariffs on Mexico and macro data from China hinting at impact of trade war and suggesting stimulus from Chinese central bank has had little effect on the country’s economy triggered a fresh wave of bearish price action in the global market. As tensions surrounding trade war continue to escalate, safe haven asset boom while risk assets bleed and decline at fast pace. Trump’s tweet tantrums has been increasing off-late and his latest tweet stating that his mindset is shifting ever farther from reaching trade deals just days after treasury department listing nine allied nations as potential target for economic warfare has caused global market to see a meltdown on last trading session of the week. Forex market is also seeing dovish activity on risk averse investor sentiment.

Precious Metals: Precious metals continue to trade positive on risk aversion fuelled investor sentiment. However, neither gold nor silver has made any solid gains so far owing to other safe haven instruments eating away at market demand. Precious metals denominated in USD are costly for investors who hold other currency resulting in precious metals failing to make serious headway to the upside.

Crude Oil: As trade war woes and fear of global economic recession grips investor sentiment across all major markets, crude oil price fell sharply. Major crude oil benchmarks WTI and Brent are down more than 1.5% on the day as economic slowdown would mean less demand for crude oil.

AUD/USD: The pair lost all gains made in previous session as risk aversion peaked in market today. Increased trade war woes and disappointing Chinese macro data weighed down investor sentiment adding bearish pressure to AUD bulls. Sell-off of major global currencies in forex market fuelled USD bulls adding strength to US Greenback causing pair to reverse yesterday’s price action and decline sharply.

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On The Lookout: All eyes remain on US President Donald Trump as his antics continue to greatly affect activity in global market so far this week. China has made an announcement today hinting at unprecedented list of firms being targeted for retaliatory tariffs in response to USA’s bullying activity. As per statement from Chinese commerce ministry, companies who violate market rules and spirit of contracts, block supply to Chinese companies for non-commercial reasons are deemed target for this tariff list but no particular company has been named heightening tensions in the global market. Meanwhile, Trump is back to his old hobby of bullying neighboring nations hinting at tariffs on Mexico unless illegal immigration stops despite their co-operation and patient approach towards USA during recent NAFTA negotiations which displayed a clear tinge of America first attitude. While focus remains on geo-political events, traders look to macro data updates for short term profit opportunities.

Trading Perspective: US Wall Street is likely to see bearish activity as Trump’s antics are likely to inspire risk averse activity even in US market. While Trump may seem oblivious to implications of his actions, investors handle the scenario differently. As wave of bearish influence assaults the market from different angles, today’s North American market hours are likely to be filled with risk-off trading activity.

US Market: China’s threat of retaliation on US imports and Trump’s threats on tariff over Mexico has caused investor sentiment to turn sour in international market. This was clearly visible in activity surrounding US index futures trading in the international market which saw sharp declines ahead of Wall Street opening hinting at bearish cues for activity in American market later today.

EUR/USD: Despite prevalent risk-off mood in the global market, Euro managed to trade positive across Asian market hours and has retained strength in European market hours as spread widening between government bonds remains in favor of EURO. This resulted in EURO remaining immune to dovish macro data. Traders now await US macro data updates for short term profit opportunity as trading session closes for the week.

USD/CAD: US dollar capitalized on sharp decline in crude oil price gaining much needed bullish trigger to see upward price action. Further, risk-averse investor sentiment induced sell-off of major currencies also weighed down on Canadian Loonie bulls favoring sharp upside move so far today. Traders now await Canadian GDP update, Budget balance update and US Chicago PMI update for short term profit opportunity as trading session closes for the week.

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