Stocks across Europe were under pressure once again on Monday as evidence mounts of the US – Sino trade war choking the global economy. As Trump engages in trade disputes on multiple fronts and China accuses the US of intimidation whilst also starting an investigation into FedEx (NYSE:FDX).
The latest moves are a clear sign that the US – Sino trade dispute is going to be a drawn-out affair. Hopes of an agreement at the G20 have dwindled, even a cordial discussion between the two powers absence of threats looks like a big ask.
Global manufacturing sectors contract
Traders are finding it hard to ignore the mounting evidence showing the negative impact that the ongoing trade dispute is having on the global economy.
Manufacturing sectors across the globe are contracting amid as fears of a global downturn. Last week we saw the official Chinese manufacturing pmi dip below 50, whilst the Caixin print hovers just above the key 50 level. Trade sensitive Germany has seen manufacturing remain depressed at 44.3 for the second straight month and the US has also joined the manufacturing cortactin club.
The US economy is by no means immune to the economic impact of a prolonged trade war with the world’s second largest economy.
Fed’s next move a cut?
US consumer confidence increased by less than forecast, US manufacturing activity contracted to a 2 year low and the fixed income marker has been sounding recession warning bells. Understandably investors are starting to assume that the Fed could be considering cutting interest rates rather than hiking them.
As the trade dispute looks to be a prolonged, messy war leading to a global economic downturn, markets are now fully pricing in a Fed cut by the end of the year and 50% probability of a rate cut by July. The dollar fell to a 1 week low versus a basket of currencies.
Gold shines amid recession fears
With global recession fears picking up and risk aversion in play, plus the odds of a Fed rate cut on the up, gold is starting to shine.
Lower interest rates are beneficial for non-yielding gold because the opportunity cost of holding the yellow metal decreases. The precious metal extended Friday’s gains and is trading almost 1% higher as it tests resistance at $1322. A meaningful move above this level could see gold extend gains to $1328, before $1333.
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