Prepared by Jeff Halley, Senior Market Analyst
Trade-war induced global slowdown
Global financial markets continued their collective hand-wringing overnight, with worries over the trade-war induced global slowdown becoming a long and drawn out hangover for the street that just won’t go away – no matter how many vitamin C tablets go into the glass of water.
The US dollar was mixed, but gold continued sailing higher, propelled by the gusting safe-haven trade winds. North American stocks bore the brunt of the hangover on a slow data day, with the Dow Jones falling 1.50% and the Nasdaq and S&P 500 both down 1.20%.
We can’t really complain though as someone else is always in a worse spot than you. That prize was won by Argentina, where President Macri was royally trounced in the primary elections overnight (the elections to decide who gets to stand in the elections) by his Peronist rival. Argentina’s Merval stock market index fell 48% in dollar terms, and the Argentinian peso (ARG – or should that read ARGGGGHHH!) dropped 15%, having been down 30% intra-day. Yes folks, you read those numbers right.
The bitcoin-on-steroids volatility aside, I expect the fallout to be fairly localised. LATAM heavyweights, the Brazilian real (BRL) and Mexican peso (MXN), both fell a far more modest 1% overnight. Argentina belongs to that special economic management club that counts countries such as Venezuela, Zimbabwe and North Korea among its members. Amusing to watch but not global game-changers in isolation. What it does highlight is that economic populism is alive and well in all corners of the globe – a far more worrying development in the long-term than a US-China trade war.
Locally, Singapore’s GDP figures have been released this morning, coming in slightly worse than expected. GDP for Q2 fell 3.3% QoQ and grew an anaemic 0.1% YoY. Unlike Argentina, Singapore is a free market, global bellwether economy and its consistent run of poor data is cause for concern, both regionally and globally. The semi-annual Monetary Policy statement due in October looks more and more likely to contain an easing bias.
The greenback had a mixed bag overnight, falling against the EUR, GBP and YEN while gaining against emerging markets currencies as well as the AUD and NZD. The fallout from the ARG collapse will be limited with regional currencies in Asia far more focused on the global growth story. That said, regional currencies including the AUD and NZD will likely continue to trade heavily as high-beta China equivalents, especially after Wall Street’s overnight performance.
Given the sagging Wall Street indices and a paucity of local data today, regional stock markets are likely to start the day in the red and stay there unless we get a surprisingly bullish headline from the left field.
Both Brent Crude and WTI held steady overnight, consolidating the dead cat bounce post last week’s trade-war induced selloff. Brent is currently trading at USD58.50 a barrel and WTI at USD54.75 a barrel, with regional trading expected to remain subdued as markets focus on politics and equities.
Gold hit a six-year high overnight, rising over 1% to USD1,512.50 an ounce as Argentina’s populist protest vote boosted the safe-haven dream run of the yellow metal. Gold wilted before the dark forces of world trade earlier this year, but its much-delayed multi-month comeback has been impressive. A casual glance around the global news outlets each day suggests many more reasons traders want to own gold than not. I would expect this sentiment to continue, especially if China assumes someone new will be sitting in the White House in late 2020 – a very dangerous assumption.
Coming back to the here and now, gold continues to nicely consolidate its recent multi-day gains between USD1,500.00 and USD,1510.00 an ounce. With the technical picture looking strong and no discernible chance of the geopolitical outlook suddenly pivoting to sharing the toys, gold should continue finding plenty of support on dips.