Trade war worries weigh on markets

Gloomy growth and trade troubles hit sentiment

Equity markets remain in the red heading into the final day of the week, building on Thursdayโ€™s sizeable losses as a raft of negative headlines unsurprisingly took its toll on investor sentiment.

Thursday really was a bad news day, with the European Commission and Bank of England both sharply revising lower their growth expectations for 2019, with the latter forecasting the worst year since the financial crisis. This comes amid a global growth slowdown and a huge amount of Brexit uncertainty thatโ€™s having a disproportionate impact on the UK.

Theresa May was back in Brussels on Thursday trying to convince her increasingly frustrated โ€“ see Tuskโ€™s comments for reference โ€“ counterparts to agree to provide the necessary legal assurances on the backstop to get her deal over the line. The meeting went as well as she could have hoped, with both sides agreeing to work together and meet again at the end of the month. Of course, this calls into question the point of the vote on 14th February in Parliament and will lead to further suggestions that May is simply running down the clock again and gambling on her deal being backed to avoid no deal.

Aussie drops as RBA downgrades growth forecast

This was followed by reports that there will be no meeting between Trump and Xi this month, casting doubt on whether enough has been achieved in talks to avoid further tariffs being imposed. As ever with these negotiations, it can be difficult to discern actual breakdowns from brinkmanship, especially when the narrative change from week to week.

USD lifted by trade reports but gold remains resilient

Not only did these reports take their toll on equity markets, they also triggered a rebound in the dollar. The greenback was favoured throughout the escalation of the trade war and has softened since talks began, on hope that an agreement can be found. The latest setback reversed the trend earlier in the session and saw the dollar trading back around 2019 highs.

Markets Get Lost In The Fog

Naturally this isnโ€™t great news for gold which typically performs worse when the dollar is appreciating. Interestingly though, as weโ€™ve seen a lot recently, while gold is rallying well on periods of dollar weakness, the inverse is not true to the same extent. So while gold is a little lower on the day, itโ€™s still comfortably off the lows it tested yesterday when it came within touching distance of $1,300 before rebounding. This remains a bullish signal.

Gold Daily Chart

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Craig Erlam

Craig Erlam

Senior Currency Analyst at OANDA
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the Wall Street Journal and The Telegraph, and he also appears regularly as a guest commentator on networks including Sky News, Bloomberg, CNBC and BBC. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.