US Open – China Consulate Closure triggers flight to safety, Euro rallies, Oil softens on supply glut, Gold shines

US stocks declined with crude and copper, while Treasuries rallied as investors fear escalating tensions between the US-China will dampen the global outlook for technology and trade.   The State Department noted that China’s closure was based on the need to protect American intellectual property and American’s private information.  This latest escalation prompted China to consider the closure of the US consulate in Wuhan.  China was given three days to close its consulate and has already been seen burning documents. 

Wall Street was already a little nervous going into today’s big tech earnings day,(Tesla and Microsoft report after the close) so the China consulate action made it an easy decision for traders to head for the sidelines. 


The US dollar recovered much of its earlier declines following the China consulate closure announcement.  While the dollar could still see a little more strength, a full-fledged rally is unlikely as China will not let these tit-for-tat escalations get out of control.  China cares about the rest of the world and they won’t risk a deteriorating relationship with the US force other countries to have to take sides. 

The euro is stronger across the board and is starting to emerge as a safe-haven currency.  With the coronavirus under control, monetary and fiscal stimulus in place, and a better short-term outlook, investors are starting to gravitate to the euro. 

Safe-haven demand sent Treasuries higher, with the 10-year yield falling 1.1 basis points to 0.589%.  The 10-year Treasury yield is approaching key support from the July low of 0.571%.  Low interest rates are here to stay and with real yields entrenched in negative territory investors will carefully watch if the Treasury rally gets too strong. 


Crude prices extended their slide after the China consulate action delivered a strong wave of risk aversion across all asset classes.  The crude demand rebound will struggle since US-Chinese tensions are not going away anytime soon.  A complete divorce between the world’s two largest economies seems unlikely so the global demand outlook for crude might not get completely derailed here. 

Oil was already trading lower on virus concerns and after the API inventory showed a large increase in stockpiles.  Later this morning, the EIA energy report is expected to show a slight draw, but the consensus range is very wide from a 3.2-million-barrel draw to a 4.5-million-barrel build.  Following yesterday’s 7.5 million API build, energy traders might see limited downside if that is confirmed by the EIA report.   


Precious metal traders are singing this little gold of mine, I’m gonna let it shine.  Gold squashed any doubts that it is a safe-haven and only subject to further strength when broader risky assets rally.  Gold jumped higher after the US-China dispute over the Houston consulate added to concerns that their relationship is beyond repair. 

Demand for safe-havens were already growing after President Trump warned the outbreak will probably get worse before it gets better.  Gold is going to keep on shining as US Treasury yields continue to slide, virus worries remain persistent, and talks on fiscal stimulus resume in the US. 

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Ed Moya

Ed Moya

Contributing Author at OANDA
With more than 20 years’ trading experience, Ed Moya was a Senior Market Analyst with OANDA for the Americas from November 2018 to November 2023. His particular expertise lies across a wide range of asset classes including FX, commodities, fixed income, stocks and cryptocurrencies. Over the course of his career, Ed has worked with some of the leading forex brokerages, research teams and news departments on Wall Street including Global Forex Trading, FX Solutions and Trading Advantage. Prior to OANDA he worked with, 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 CNBC, Bloomberg TV, Yahoo! Finance Live, Fox Business, cheddar news, and CoinDesk TV. His views are trusted by the world’s most respected global newswires including Reuters, Bloomberg and the Associated Press, and he is regularly quoted in leading publications such as MSN, MarketWatch, Forbes, Seeking Alpha, The New York Times and The Wall Street Journal. Ed holds a BA in Economics from Rutgers University.