Global markets in a delicate spot

17 April, 2018

Analysts at Westpac, suggest that global markets remain in a delicate spot due to ongoing uncertainty of the US/China trade saga and growing geopolitical tensions.

Key Quotes

“The global narrative has quickly shifted from synchronous global growth, upgraded growth and glimmers of inflation in early 2018 to a focus on tariffs and protectionist rhetoric. That said, markets have been in a more conciliatory mood with President Xi’s Bo’ao speech highlighting that China is willing to negotiate.”

“We ultimately believe that we will see a negotiated solution (even one that allows the US to claim an immediate political victory). That said, there is still a long way to go and further bouts of volatility and headline risk seem assured.”

“Geopolitics has also grown in importance in recent times, with recent US led airstrikes on Syria. While President Trump may have declared “Mission Accomplished”, this action has unsettled global equity markets and increased volatility.”

“With this uncertain backdrop, USD has not been able to capitalise and seems likely to remain stuck at lower levels for longer. The threat of a more hawkish Fed may be the USD’s best hope, yet that risk seems remote given the heightened market volatility, trade tensions and still benign wage/inflation trends.”

“Bond yields have been steady, but continue to have a bearish underpinning and US10 year yields continue to threaten the psychological 3% level. We still believe a material push higher in yields would require either growth data to surprise to the upside and/or renewed inflation fears. Two other key themes underpin bond markets:

1. The continued move higher in Libor and its potential repercussions. This is affecting AU and (to a lesser extent) NZ. The rise in BBSW is forcing higher rates on many corporates and adding to RBA caution. RBA FSR states “the recent spike does not relate to major market stress or concerns about bank credit risk.” Nevertheless the fact that such widening was last associated with the depths of the financial crisis (and true bank funding risks) is unsettling.

2. At the same time (and no doubt related) we saw the CBO publish revised forecasts US Fiscal Position. They show a dramatic deterioration in their latest forecasts - from 2019, the CBO’s best-case scenario sees the deficit at 5% of GDP, leaving public debt to GDP at 96% of GDP in 2028. That is a lot of US Bonds to issue at a time of rising interest rates and when Trump continues to antagonise their largest creditor.”


Source link  
Gold drops to fresh session lows

Fails to capitalize on last week's goodish bounce, despite a subdued USD demand. A goodish bounce in US bond yields/risk-on mood prompts some fresh selling...

Gold to retest trend channel resistance

The precious metal's corrective slide on Friday, from near six month tops, stalled ahead of an important confluence resistance break-point now turned support...

Gold looks to $1210 ahead of US data

Stalled US dollar bounce combined with negative European equities, Treasury yields underpin. Volatile within $ 5 range ahead of the US core PCE data...


Gold and oil shorts covered

According to the CFTC Weekly Report (W/E July 10), as the WTI crude oil spiked toward $75/bbl amid fears of supply shortages and low spare capacity, which...

Powell to stick to gradual path

Analysts at Deutsche Bank suggest that new Fed Chair Powell’s testimony is at 3pm GMT and he will be speaking on behalf of the FOMC...

GBP futures: bottomed out?

In light of advanced figures for GBP futures markets, open interest decreased by almost 5K contracts on Friday vs. Thursday's 209,855 contracts...


Strong market sentiment continues

Chief Analyst, Allan von Mehren at Danske Bank suggests that global market sentiment continues to be strong with further decent increases in stock...

A week with no market movers

In the US, the coming week brings no market movers. The week after New Year’s Eve, however, brings several interesting releases. As the statement from the meeting..

Buy the rumour, sell the fact

It’s an action-packed week for global markets with a deluge of G20 central bank meetings and key economic data releases to contemplate ahead of...

  


Share it on:   or