FXTM Weekly Roundup: EM chaos and US-China tension puncture investor confidence
Risk aversion was a dominant theme this week as chaos across emerging markets and escalating U.S.-China trade tensions punctured investor confidence.
Contagion fears from a brutal EM currency selloff weighed heavily on global sentiment with stock markets across the world ending lower. In the EM space, major currencies were treated without mercy by investors with the Indonesian Rupiah, South African Rand and Turkish Lira among many others witnessing steep losses. Risk aversion was so rampant across the board that EM stocks slipped into bear territory.
There was a strong sense of tension building across markets ahead of a possible announcement from Washington that the U.S. will i mpose tariffs on an additional $200 bln worth of Chinese goods. U.S.-China trade tensions could reach a dangerous tipping point if President Trump moves ahead with imposing the fresh tariffs. With such an unfavourable development fuelling fears of a full-blown trade war becoming reality, appetite for risk may diminish even further.
It was a rollercoaster trading week for the British Pound thanks to conflicting reports revolving around Brexit developments. The currency was offered a boost after Bloomberg reported that both the UK and Germany had dropped key Brexit demands. However, gains were later surrendered after German officials denied these reports.
In the commodities arena, Oil prices were buoyed by reports of U.S. crude inventories dipping to their lowest levels since 2015. However, simmering U.S.-China trade tensions and ongoing weakness across emerging markets weighed on investor sentiment. In regards to Gold, the yellow metal remained mostly pressured by US rate hike expectations with prices trading around the $1,200 psychological level.
The upcoming economic reports trading week from major will be filled with key nations, central bank meetings, and ongoing trade developments. China will be under the spotlight on Monday with inflation figures for August being announced. In the United Kingdom, all eyes will be on Monday’s GDP figures and Thursday’s BoE policy meeting which could spark some Pound volatility. Although the European Central Bank is unlikely to alter monetary policy on Thursday, markets would like to hear the ECB president’s thoughts on the latest trade and EM developments. Across the Atlantic, the U.S. retail sales report scheduled for release on Friday could impact rate hike expectations beyond September.
All in all, market sentiment is poised to remain heavily influenced by chaos in emerging markets and ongoing global trade tensions in the upcoming week. For information, disclaimer and risk warning note visit: www.ForexTime.com
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