Week of caution as China sees growth slowdown
The trading week commenced on a cautious note after the People’s Bank of China cut its RRR requirement for the fourth time in 2018 over the last weekend. This move immediately sparked concerns over the world’s second largest economy experiencing a slowdown in growth momentum. With investors adopting a cautious stance, global stocks and emerging markets came under pressure.
Global sentiment was dealt another blow mid-week after the International Monetary Fund (IMF) downgraded its economic growth forecast for the first time since July 2016. Escalating trade tensions and stresses in emerging markets were the primary factors behind the IMF downgrading growth forecasts for both 2018 and 2019 to 3.7%.
On Wednesday, U.S. equity markets suffered their worst selloff since last February. The selloff followed U.S. President Donald Trump’s criticism of the Federal Reserve for raising interest rates too expediently. Equity markets across the globe were a sea of red on Thursday as rising U.S. bond yields, global growth fears, trade tensions and prospects of higher U.S. interest rates dented appetite for stocks. Although markets later rebounded on Friday, this could be short-lived amid the fragile sentiment.
In the currency markets, the Dollar weakened to a monthly low against a basket of major currencies thanks to Donald Trump’s repeated criticism of the Fed and soft US inflation data. The Pound was boosted by optimism over the UK and European Union securing a Brexit deal as soon as Monday. In Europe, the Euro remained influenced by the Dollar while the Yen benefited from safe-haven demand.
Gold was the star of the show after prices aggressively appreciated towards $1,226. While prices have scope to extend gains on Dollar weakness, the fundamentals still favour bears. Oil prices were also pressured by the general risk-off mood with WTI Crude and Brent concluding the week in losses.
will be jammed with key economic reports from major economies. U.S. Core retail sales will be in the spotlight on Monday which will risk impacting rate hike expectations beyond December. In the United Kingdom, there will be a special focus on the average earnings report for Tuesday, inflation figures on Wednesday and retail sales on Thursday. Although the Pound remains influenced by Brexit talks, a string of positive economic data could offer near-term support.
In the United States, investors will closely scrutinize the FOMC meeting minutes on Wednesday for further clues into rate hike timings for 2019. The week could end with a bang if China’s GDP report concludes with an upside surprise.