Bond market volatility is easing after decent trade data from China and optimism the PBOC is slowly depreciating the yuan, a sign they don’t want to accelerate the global currency crisis. If the PBOC delivers limited weakness in the coming weeks, this will be welcomed news for foreign business that can’t afford to have yuan weaken any further.
Currency wars are likely to remain the dominant theme as central banks are all returning or beginning easing cycles that will welcome domestic currency weakness to improve competitiveness in the short-term.
The labor market remains robust in the US after jobless claims came in better than expected, while the four-week average stayed steady, a sign the trade war has not yet impacted US jobs.
Speculation is high that Italian President Mattarella could dissolve Parliament, which would trigger early elections. Right now, nothing is getting done in Rome and Italians would most likely benefit if elections yielded a more traditional right-of center coalition. Italy could use a stable government, which is not what they have right now.
Saudis are scrambling to send a signal that will stabilize oil markets. Energy markets have been pummeled as global recession risks surged this month. The demand part of the equation remains soft as global leading indicators continue to collapse, the US consumer is showing signs of weakness and with no end in sight for the US-China trade war.
With energy prices heading for the worst weekly close since December, we should not be surprised to hear more rumors that OPEC may be considering increased production cut efforts ahead of key summit that is tentatively planned for the second week in Abu Dhabi.
Gold’s rally is taking a little breather as the trade war induced selloff appears to be overdone. With the majority of the global indexes rebounding, it is no surprise we are seeing gold pullback after making a six-year high and crossing over the $1,500 an ounce level. Trade war escalations have done wonders for this part of the rally and while we may see periods of calm over the next couple weeks, it is unlikely we will see a strong case to abandon safe-haven positions.
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