Monday is likely to have a risk averse start to the trading week after China put a thorn in optimism a broad trade deal would be reached this week, Hong Kong protesters defy a mask ban, and after the UAW noted that talks with GM have ‘taken a turn for the worse’.
European economic data also confirmed the shaky outlook to the global outlook after August German factory orders came in much lower than expectations and euro zone Sentix investor confidence report showed steep declines across the board. Confidence fell well below the most pessimistic forecast, while expectations, the 6-month outlook dropped 5.2 points to -18, deeper into negative territory.
Even with high expectations global central banks will deliver stimulus and governments will try to have fiscal policies in place, financial markets can’t shake trade concerns and geopolitical risks that include Brexit and Hong Kong.
The situation in Hong Kong continues to heat up as protesters ignore a face mask ban and as violent clashes show no signs of easing. Chinese President Xi is currently battling both a trade war with Trump and the worst political crisis that has hit Beijing in decades. Hong Kong protesters’ growing distrust for the government means we are likely to see the situation get uglier and it seems likely military might the next step.
The three-week strike at General Motors seems set to go on much longer after talks hit another major road block. Job security concerns are a key hurdle and as this drags out, we will likely see a greater impact on the October employment numbers.
Oil prices are showing signs of stabilizing following last week’s plummet. The key driver for oil remains the demand outlook and it seems it all could hinge on this week’s high-level trade talks that begin on Thursday. Leading up to critical talks that will be held in Washington DC will likely see a ton of political posturing from both sides. A good part of Wall Street is becoming slightly optimistic for an interim deal, as President Trump will require a strong economy to be re-elected and as Beijing will want the situation in Hong Kong not to gain international support. China could be willing to deliver on some of the key roadblocks of rewriting Chinese law if the US silently promises not to aid to the movement for greater democracy in Hong Kong.
Gold is likely to remain rangebound ahead of this week’s high-level trade talks. Gold’s bullish trend will likely be supported on fresh stimulus bets from global central banks and optimism that we will not see a broader trade deal this week, just a de-escalation in tariff threats and possibly an extended trade truce. Trade jitters are likely to remain for the foreseeable future and that should help keep gold rising higher.