A bonfire of vanities

Prepared by Jeff Halley, Senior Market Analyst

A bonfire of vanities

It’s taken quite a while, but finally, markets appear to be starting to price in the effect of an extended US-China trade war on global growth. The two strongest bastions of denial – the equity and oil markets – led the way as oil plunged in its biggest one-day fall of the year. This collapse was the final straw for Wall Street, which had already noted less-than-impressive sessions from Asia and Europe, where investors rushed en masse for the exit doors. The US 10-year treasury was clearly the destination for much of the exit flows with its yield falling to 2.31%, leaving the curve unambiguously inverted out to ten years.

Even the mighty US dollar suffered as investors tarred everything American-made with one brush. The Japanese yen (JPY) and Swiss franc (CHF) outperformed on safe-haven flows rising 0.6% to 109.60 and 1.0030, respectively. Even the beleaguered euro (EUR), Australian dollar (AUD) and New Zealand dollar (NZD) managed to record small gains against the greenback.

Japan, Singapore and Malaysia data points today will likely be smothered in the rush for safety as the theme continues from overnight.


The greenback faded against most of the majors as the US yield curve moved lower overnight. The effect may be transitory, however, as the USD remains the big dog on the block purely from an interest-rate carry perspective. That carry may have closed up somewhat, but once the dust settles, it will still be there and will remain supportive of the dollar throughout 2019.

Regional markets can expect no such luck, though. Asian currencies will almost certainly come under pressure against the dollar as the rush for the exit on Wall Street overflows into regional markets. Both AUD and NZD staged small rallies overnight, but with such a high correlation to China, it’s hard to see their overnight strength being sustained if Asian currencies are falling against the dollar en masse.

The exception here will probably be the Japanese yen which has its own safe-haven status and usually rallies in times of trouble.


Wall Street’s leading indices all fell by more than 1% overnight, and that theme looks likely to be the case in Asia today as well. The Nikkei 225 is already down 0.90%, and the ASX 200 has fallen 0.75%. As the rest of Asia opens, it’s hard to envisage anything other than a sea of red as investors exit equities and move to the sidelines ahead of the weekend.

Emerging Asia markets could be particularly vulnerable as global wobbles typically see them sold as a group. The lower liquidity in regional markets could well exacerbate the moves.


Overnight, oil plunged in its biggest one-day loss of the year as stubbornly high US inventories and global growth worries burst the well-head. Brent Crude gushed 4.10% lower to USD68.20 a barrel while WTI dropped 5.1% to USD58.15 a barrel.

The price action completely vindicates OPEC’s stance that optimism, not fundamentals, powered recent price rises and that prices were “fragile.” That will be cold comfort in the halls of power across the Middle East though.

Brent Crude broke important daily support at USD69.50 overnight, and the charts reveal no technical support until the USD66.00 regions. WTI broke support at USD60.00 and USD58.00 a barrel, and its technical picture looks even more cloudy with no support levels until USD55.00 a barrel.

After such an aggressive drop overnight, it would be nice to say Asia may see a small correction. However, oil remains acutely vulnerable to any trade headlines, and with Asian currencies and stocks most likely to be dragged lower, any rallies may be short-lived.


Gold finally caught a break as bonfires in other global markets saw safe-haven flows push it USD10 higher to USD1,283.00 an ounce. One day does not a trend make though, and it’s too early to say the precious metal is about to emerge from the land that time forgot.

A continuing meltdown in other global markets as the street finally reprices the real cost to the world of an extended US-China trade war could see gold benefit. The longer-term technical picture shows a series of lower highs through 2019 as each rally faded long before the previous one. The last rally stopped at USD1,303.00 an ounce, and we would need to see a weekly close above that level before long-term optimists get excited.

Gold should be well supported on any dips today in Asia though, with safe-haven flows likely to be in full flight after last night’s ructions and ahead of the weekend.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Andrew Robinson

Andrew Robinson

Senior Market Analyst at MarketPulse
A seasoned professional with more than 30 years’ experience in foreign exchange, interest rates and commodities, Andrew Robinson is a senior market analyst with OANDA, responsible for providing timely and relevant market commentary and live market analysis throughout the Asia-Pacific region. Having previously worked in Europe, since moving to Singapore he worked with several leading institutions including Bloomberg, Saxo Capital Markets and Informa Global Markets, proving FX strategies based on a combination of technical and fundamental analysis as well as market flow information. Andrew began his career as an FX dealer with NatWest and the Royal Bank of Scotland in the UK.
Andrew Robinson

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