Gold A Winner As Trade Tensions Fan Global Downturn Fears
(Jun 03, 2019 - London Capital Group)
Asian markets moved mostly lower overnight, European and US stocks are pointing to a softer open and oil slipped to a multi-month lows as concerns grow that new threats against Mexico and India, heaped on top of the US-China trade dispute could push the global economy into recession.
May proved to be a brutal month for stocks with traders dumping risk and buying into safe havens bonds, pushing yields to a 20-month low. The yen was also trading at a 6-month high overnight as investors price in an a drawn out, messy trade war. Markets had been optimistic that the US and China would be able to work towards a deal again when President Trump and President Jinping Xi meet at the G20. Even that looks far-fetched now.
Caixin Chinese manufacturing pmi steady, US data up next
The only reason stocks haven’t fallen further this morning is because the Chinese Caixin manufacturing pmi managed to hold in positive territory, at a slightly better than expected 50.2. However, this comes after the official Chinese manufacturing pmi last week which showed the sector in contraction in May.
Traders are increasingly pricing in a prolonged trade war hitting the global economy, particularly as weaker data points to a global downturn. South Korean exports – often considered a bellwether for global growth dropped 9.4% in May, well below the 5.6% decline forecast.
Investors will now look ahead to the US ISM manufacturing figures later today. Analysts are expecting a marginal tick higher in manufacturing activity to 53, up from 52.8. Should today’s manufacturing data show a deterioration then we expect bearish positions and flight to safety to pick up further.
Friday’s data showed that US consumer confidence rose by less than expected in May as the escalating trade dispute weighed on the outlook for the overall economy. Should we start to see continued weakness in US data, the bottom could drop out of this market pretty quickly.
Dollar dips as Fed rate cut predictions grow
The dollar was on the back foot in early trade. Investors have grown so gloomy over the growth outlook that they are now fully pricing in a Fed interest rate cut by the end of the year and a 50% probability of a cut by July, according to the CME FedWatch tool.
Gold to $1350?
Gold is a clear winner amidst growing fears of a prolonged trade war on multiple fronts and a global downturn. The precious metal was extending last week’s impressive gains, powering through 1300 to levels not seen in over 2 months. As long as trade tensions remain elevated and fears of a Fed rate cut intensify, gold could quickly move towards $1350 and beyond.
