Week of cau­tion as China sees growth slow­down

Financial Mirror (Cyprus) - - WORLD - By Luk­man Otunuga, Re­search An­a­lyst at FXTM

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.

The up­com­ing

trad­ing week

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.

Newspapers in English

Newspapers from Cyprus

© PressReader. All rights reserved.