Concerns over the health of the global economy continued to weigh on sentiment at the start of the new week. European bourses fell southwards, following in the footsteps of Asian markets overnight and amid a softer start on Wall Street this afternoon.
Worries over the economic outlook had been building following a surprisingly dovish Fed, last week. These fears were stoked on Friday following poor European output data and the inversion of the US yield curve for the first time in over a decade. The yield of the 3-month treasury topping its 10-year counterpart is often considered a warning for a recession. The last time this happened was pre the financial crisis in 2007. With recession warnings sounding, traders are growing increasingly nervous.
There is a definite uneasiness surrounding the state of the global outlook, which investors just can’t shake off. As a result, demand for risker assets has fallen sharply and we are seeing increased flows into safe havens, such as the Japanese yen and gold.
Gold hits 1-month high
Gold is a standout performer today, hitting a 1 month high of $1328.65 A weaker dollar and US 10-Year treasury yields nearing a 16-month low are boosting demand for the precious metal, which posted its third consecutive weekly gain last week. Should US recession fears linger, flows into gold could increase, potentially pushing it towards resistance at $1332, before targeting $1380.
FTSE lags European counterparts
The FTSE fell harder than its European counterparts, thanks in part to the stronger pound. Sterling is finding support from ministers in Parliament making a fresh attempt to gain control of Brexit. This is being interpreted as the route towards a pound favourable softer Brexit or even a second referendum. Pound traders once again took the optimistic view, ignoring EU warnings that ta o deal Brexit is more likely now.
Risers on the FTSE were few and far between. The house builders and banks moved northwards on Brexit optimism and precious metal miner Fresnillo (LON:FRES) topped the board as gold prices soared.
Growth concerns overshadow Trump victory
The three main US indices all dipped lower, extending Friday’s losses as global growth fears overshadowed the positive Mueller outcome for Trump. The investigation has been going on for almost two years, with the fear that it could lead to the impeachment of Trump hanging over investors. That cloud is now lifting leaving, investors to focus on US – Sino trade talks. This result is a positive outcome of the markets and could help equities pare losses as the session continues.