Safe haven assets remain bid on trade and growth concerns

Risk aversion has been the dominating direction this week.  It first started with China’s GDP growing at slowest pace since 1990, then we saw cuts to the global outlook by the IMF, followed by concerns from Chinese President Xi  over a “black swan” or “gray rhino” event, today earnings mostly missed and lastly the US reportedly turned down latest Chinese offer, that story was later refuted, but doubts still grew that a deal could be reached by the March 1st deadline.

JPY

The Japanese yen has rallied against most of its major trading partners as markets can’t seem to shrug off global growth concerns and the resumption of tough trade talk from the US.  The news that the Trump administration scrapped this week’s preparatory trade talks with two Chinese vice-ministers was later refuted by White House Adviser Larry Kudlow.  Even though the story was refuted, it should be expected to start to see the US show a tougher stance as we near the trade truce deadline. Throughout the stages of negotiations of trade talks, the US consistently provides dissatisfaction once we get closer to pivotal deadlines to enhance their negotiation stance.  The issue of forced technology transfers and structural reforms to the Chinese economy are unlikely to see major progress by the March.

GBP

The British pound rallied against all of its major trading partners as expectations are still high that we will not see a no-deal Brexit and that today’s wage data raised expectations for the BOE to deliver a hike by the fall.  Today’s wage data rose to the highest pace since 2008 and it could help deliver higher inflation.  Current expectations are that we could see a 65% chance the BOE raise rates at the November meeting, earlier in the month the markets were pricing a rate hike at the first meeting in 2020, a day before Governor Carney’s term ends.

STOCKS

US stocks returned from a 3-day weekend and delivered the worst drop in three weeks as trade tensions ramp up and earning season continues to deliver softer outlooks.  The trade war escalation could continue to weigh on technology, energy and multinational businesses.  Earlier this morning, poor outlooks and guidance from Haliburton and Johnson & Johnson kept the narrative negative.

COMMODITIES

Commodities got crushed across the board, except for gold.  The story behind the broad-based selling is an easy one, falling demand.  China growth falling to a near three decade low, the IMF slashing global growth forecasts and many large early reporters this earning season have expressed concern with their outlooks.  US shale production continues surge and pushing refiners to the highest pace in 15 years.  Record stocks of fuel keeps the gasoline glut in focus.

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Ed Moya

Ed Moya

Senior Market Analyst at OANDA
With more than 20 years’ trading experience, Ed Moya is a market analyst with OANDA, producing up-to-the-minute fundamental analysis of geo-political events and monetary policies in the US, Europe, the Middle East and North Africa. Over the course of his career, he has worked with some of the world’s leading forex brokerages and research departments including Global Forex Trading, FX Solutions and Trading Advantage. Most recently he worked with TradeTheNews.com, where he provided market analysis on economic data and corporate news. Based in New York, Ed is a regular guest on several major financial television networks including BNN, CNBC, Fox Business, and Bloomberg. He is often quoted in leading print and online publications such as the Wall Street Journal and the Washington Post. He holds a BA in Economics from Rutgers University. Follow Ed on Twitter @edjmoya ‏
Ed Moya