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Trade Winds Neither Fair Nor Following

The trade winds of the dispute between the U.S. and China have blown chill across the world for much of 2019.

Those same winds appear to be upgrading to cyclone force now as they approach the United States. The ADP Employment missed expectations at 135,000 and the back month suffered a massive revision lower to 157,000 from 195,000 jobs.

Separately the U.S. announced its intentions to impose tariffs on $7.5 billion of European good after the WTO ruled that Airbus had received illegal aid. I will note that Europe is on track to win their WTO case that Boeing had also received clandestine support via defence and space contracts which will no doubt inspire tit-for-tat tariffs on the U.S. at some stage. One bright note though is that European suits will be amongst the goods tariffed. It may reduce the horrific trend of young men wearing European suits with shortened legs, slip-on shoes and no socks — thank you WTO.

With sentiment so fragile, the one-two punch from the WTO and ADP data was enough to cremate European stock markets, with most major exchanges down around three per cent. Continental bond yields sank, with the 5-year Bund auction drawing record demand. You know there is something wrong with the world when global investors are falling over themselves to buy German Bunds at a yield of -0.77%.

The cyclonic trade winds left U.S. markets in ruble with Wall Street suffering another abysmal day and oil sinking yet again after an unexpected rise in official crude inventories added to the misery. Expectations of a Federal Reserve rate cut at the end of the month rocketed above 70% but with Markit Manufacturing PMI’s ex Europe printing respectable figures this week – lost in the noise – I think it would take a major miss lower by Friday’s Non-Farm Payrolls to make the Fed blink. Even then, I suspect the Fed would need November’s Non-Farm’s to collapse to force their hand, possibly an intra-meeting cut or a move in December.

Today we have a plethora of Markit Non-Manufacturing PMI’s released globally culminating with the U.S. ISM Non-Manufacturing PMI for September at 2200 SGT. All are expected to show that demand in the services sector remains robust, especially the ISM which is expected to sink slightly but remain at an expansionary 55.1. Given how the positive Markit Manufacturing PMI’s globally were ignored earlier in the week, it is clear that the worlds attention is on the U.S. as the consumer of last resort. Therefore, it is safe to assume that if the ISM Services PMI underperforms, we won’t have to wait for Friday’s Non- Farms to see the charge for the exit door by global investors, become an unruly stampede.


Wall Street suffered another negative day with the S&P 500 falling 1.80%, the Nasdaq falling 1.56% and the Dow Jones falling 1.86%. Only the defensive utilities and real estate sectors held their own in the face of broad-based selling after European exchanges were routed.

Asia has predictably started very negatively with the Nikkei 225 and ASX 200 both lower by around two per cent. The pain will be felt across Asia today with the Kospi and Hang Seng particularly vulnerable.

The Kospi is already extremely sensitive to trade sentiment, but an added negative will be the testing yesterday by North Korea of two submarine-launched missiles.

Hong Kong’s Retail Sales for August YoY fell by a mind-boggling 25% yesterday afternoon, proving the very real negative impact the ongoing protests in the SAR are having on the economy. This factor, along with the overnight developments, leaves the Hang Seng particularly vulnerable today.


The dollar lost ground against the Yen, CHF and Euro overnight but held its own against currencies such as the more trade-sensitive Antipodeans. The dollar index (DXY) falling only 0.1% to 99.03.

A flight to safety is the probable theme for Asian trading today. In all likelihood, regional currencies will suffer against the dollar as the cold winds of the trade war arriving in America cause investors to take fright in emerging markets.


Oil received a knock-out blow last night with global trade sentiment, crushing equity markets and sparking more concerns about future oil demand, being followed up with an unexpected rise in U.S. official crude inventories by 3.1 million barrels.

Brent crude fell 3.0% to $58.50 a barrel, and WTI fell 2.80% to $52.55 a barrel on a spot basis. Key longer-term support levels at $56.00 from Brent crude and $50.00 for WTI.

Oil has rallied slightly in early Asian trading on local commercial demand and profit-taking from overnight, with Brent 0.10% higher and WTI 0.40% higher. Rallies, however, will likely be limited as the overwhelmingly negative sentiment on global growth should act as an effective cap on prices.


Gold capped a seemingly impossible two-day comeback of epic proportions, rallying 21 dollars or 1.41%, to $1500.00 an ounce overnight.

It is important to note though that gold’s rally is not being driven by a sudden change in sentiment of gold. Instead, it is a significant beneficiary of defensive haven buying as global economic sentiment suddenly deteriorates. A positive U.S. Non-Manufacturing ISM this evening, or a positive Non-Farm Payrolls tomorrow night, could just as quickly turn sentiment on its head, sending gold lower again.

Technical levels have become somewhat redundant after the ranges we have seen and the reasons behind gold’s gyrations, the $1530.00 regions though, remain significant resistance.

With so much bad news already baked into golds price, it is no surprise that Asian investors are reluctant to chase is higher initially as it remains unchanged from it’s New York close. There should, however, be plenty of interest on any dips to buy.

We will have to await the U.S. ISM data this evening to gauge gold’s next big move.

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.

Jeffrey Halley

Jeffrey Halley [4]

Senior Market Analyst, Asia Pacific
With more than 30 years of FX experience – from spot/margin trading and NDFs through to currency options and futures – Jeffrey Halley is OANDA’s senior market analyst for Asia Pacific, responsible for providing timely and relevant macro analysis covering a wide range of asset classes. He has previously worked with leading institutions such as Saxo Capital Markets, DynexCorp Currency Portfolio Management, IG, IFX, Fimat Internationale Banque, HSBC and Barclays. A highly sought-after analyst, Jeffrey has appeared on a wide range of global news channels including Bloomberg, BBC, Reuters, CNBC, MSN, Sky TV, Channel News Asia as well as in leading print publications including the New York Times and The Wall Street Journal, among others. He was born in New Zealand and holds an MBA from the Cass Business School.
Jeffrey Halley
Jeffrey Halley

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