The FTSE climbed higher across the morning session, however, was giving up those gains across the afternoon, most notably following the US Open. Whilst European markets are managing to keep their heads above water, it’s a different story over on Wall Street, which has opened sharply lower, as recession fears takeover.
A trio of central banks across the Asia Pacific delivered surprise interest rate decisions overnight. Both New Zealand and India cut rates deeper than forecast, whilst Thailand’s rate cut was almost completely unexpected. We are seeing policymakers act more aggressively than the market was counting on, in a bid to bolster their economies.
More dovish than expected central bank action demonstrates that policymakers are growing increasingly concerned over the outlook of their economies and more broadly, the global economy. With PBOC once again allowing its currency to be set close to the key 7/dollar level, China continues to demonstrate it means business. There are no signs of US – Sino tensions easing anytime soon meaning that the global economic outlook could worsen further.
If traders needed further evidence of the slowing global economy, they only needed to look towards German industrial production figures. As if on cue and adding to traders’ woes, data from Germany showed that industrial production dropped -1.5% month on month in June, significantly worse than the -0.5% decline forecast.
Bond yields dump, gold soars
As fears rise over the state of the global economy, traders continue to move into safer havens. US and German government bonds rallied. The German bund yield dropped to a record low. The yield on the 10-year sunk over 7% to a low of 1.595, a level last seen in October 2016. Gold is another standout winner with the safe-haven soaring through resistance at $1488 to pierce the psychological level of $1500.
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