The US dollar is mixed at the start of the Asian session. Trade war anxiety and central bank actions last week resulted in a volatile five days that saw safe havens rise.
US tariffs are still in place to be placed on Chinese goods on September 1 and trade headlines will guide markets as China has appreciated the yuan, but the PBOC cannot defy the will of the market for long.
The Fed remains under pressure from the Trump administration and this week’s US inflation data could validate the central bank’s more patient stance. US CPI could gain 0.3 percent, but anything lower than the forecast will pile even more pressure on the Fed to slash rates in September.
A prolonged trade war has had negative effects around the world and economic data released this week could heighten pessimism about global growth.
OIL – Oil Lower as Trade War Could Trigger Recession.
Oil prices are falling at the start of the trading week due to lower demand forecasts published last week and pessimism about a US-China trade deal.
Oil prices rose on Friday despite a lower demand growth forecast by the IEA as a drawdown in European inventories, a softer dollar and expectations of the OPEC making a move to stabilize crude pricing. Despite the rebound, energy prices have been under pressure all week and set for a weekly loss.
Oil continues to be sensitive to trade war rhetoric. A surprise buildup in the United States added extra pressure to crude prices. Saudi Arabia is willing to do more to prevent a free fall, but hard to imagine what that would look like. The prolonged trade war has been a negative factor for global growth estimates.
The lower the estimates the less energy demand that is forecasted putting downward pressure on oil. Weather (Hurricane Barry) and geopolitical (Iran vs US) has added some support to crude prices but going forward with ample supply and a strong dollar prices could drop lower.
The OPEC+ extended in production agreement in July, but with a worse trade scenario the group has a lot to do discuss but little in the way of actual actions the group could take to keep oil from falling further.
GOLD – Gold Flat but an Attractive Option as a Safe Haven
Gold gained 3.9 percent last week. The yellow metal has risen as investors are seeking a safe haven due to geopolitical anxiety as Brexit, US-China trade war and Italian elections loom over the global economy.
Gold rose 0.35 percent on Friday and is once again trading above the $1,500 price level.
Central banks around the globe are preparing to keep rates lower and dovish rhetoric continues to be the norm. Monetary policy makers have gotten out of the metal’s way as three CBs slashed rates this week. The Fed could follow suit in September with a 25 basis points cut.
Trade uncertainty remains high despite the Trump administration walking back some aggressive comments, but with a September 1 deadline for higher tariffs on consumer facing Chinese goods the yellow metal will continue to be bid.
STOCKS – US-China Trade War Keeping Equities Under Pressure
Asian indices opened higher on thin holiday volume with safe havens still in demand on trade war anxiety.
Stocks had a volatile end of the week having to digest trade comments from US President Donald Trump and geopolitical risk rising in the Asian and European sessions. Overall the stock market rebounded last week as China although defiant in matching the US tariffs has kept the yuan under close watch to avoid triggering a currency war.
Investor confidence has wavered as the US-China trade dispute has ramped up, but global central banks have cut rates and keep signalling further cuts to avoid the global economy falling into a recession.
Headwinds remain strong as a deal in the short term between the US and China is a long shot and that is what the Friday trading session reflected.
Equities remain sensitive to trade headlines even as some of the initial shock announcement of a new offensive to be launched on September 1 has worn off, but with no clear olive branch being offered by either side the trade dispute has no end in sight putting downward pressure on equities.
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