Asian markets followed Wall Street lower overnight as investors continued to fret over the unravelling of trade negotiations. For a third straight session investors are switching out of riskier assets and into havens such as government bonds, gold and the Japanese yen.
Gold pushed moderately higher in early trade on Wednesday while the Japanese yen hit a six week high versus the dollar pushing through 110. The dollar moved higher versus a basket of currencies.
The overriding fear here is that global growth will take a hit should the US and China fail to hash out a trade deal and do so sooner rather than later. Just as the global economy was starting to show tentative signs of stabilising, a bigger slowdown is now back on the cards.
All eyes to US – China trade talks
The focus now will be on the two days of talks in Washington scheduled to take place between US and Chinese officials. Given the continued signs of risk aversion in the markets, investors are not holding their breath for any serious progress in these talks. The chances of the two powers resolving their issues over the coming two days of talks appears unlikely.
Once again, we are starting to see the market price in the US – China trade dispute as both an immediate and long-term risk factor, rather than an issue that was on the brink of being resolved. With this in mind, the S&P looks mispriced close to all-time highs and we can expect to see the US index experience a few more sessions similar to last night’s, when it shed 1.6%.
Chinese imports & exports paint a mixed picture
The focus on the escalating trade dispute has meant that Chinese import and export figures have passed almost unnoticed, when usually they would be closely scrutinised for clues as to the health of the Chinese economy. The data painted a mixed picture with imports unexpectedly increasing, for the first time in five months whilst exports declined. Given the latest turn in the US – Chinese trade story, the outlook for Chinese exports is challenging.
RBNZ cuts rates
The New Zealand dollar fell overnight after the Reserve Bank of New Zealand cut interest rates to a fresh record low. It cut the OCR to 1.5% and hinted that there could be more cuts to come. The NZD/USD fell 0.4% on the news. As central banks across the globe start to adopt a more dovish stance, traders will be questioning whether this is the start of a new trend for central banks.
Opening calls
FTSE to open 5 points lower at 7255
DAX to open 2 points higher at 12094
CAC to open 7 point higher at 5402
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