MARKET INSIGHT
Slowdown fears support gold, pressure equities
China reported weaker-than-expected GDP growth for the third quarter of 2018, sparking renewed fears of a global slowdown. The news comes in the wake of volatility and losses in Asian and US stock markets which saw the Shanghai Composite fall to 4-year lows in punishing sell-offs.
In related US news, dismal performances in Asian stocks had a toxic effect, adding to wariness over the prospect of higher interest rates and a hawkish Federal Reserve bent on curbing inflation. Heavier borrowing costs weighed on indices, which went through a sobering period of losses with brief recoveries between October 10 and 18. In one day on October 18, the Dow Jones shed 1.3 percent, the S&P 500 lost 1.4 percent and the Nasdaq dropped by 1.8 per cent.
Gold gained amid the turbulence in global stock markets. In a classic safe-haven reaction as of October 19, spot prices moved upwards to hover around $1,230 per ounce as investors hedged their bets against volatility in the equity markets. The precious metal appears to have ended a long losing streak started in August, during which prices dropped towards $1,180 on a lack of buying impetus.
In other commodities, Brent crude parachuted from its October peak of just over $86, landing slightly under $80 as of October 19. As one of the culprits causing investor consternation, oil plays a complex role in the overall macro-economic equation. Now that China’s growth is suffering from trade war and higher commodity costs, oil prices may also see a decline given lower demand and ready global supplies.
Also, the ever-present geopolitical tensions over Iran sanctions on oil exports shouldn’t be forgotten. Should they flare up again in November, price volatility may increase again.
All the factors mentioned above contributed to volatility in October. While it’s true that market turbulence is common during this month, there are also some uncomfortable parallels to an earlier situation, when China experienced a slowdown in 2007/08. Global stock markets and commodity prices experienced long-tail volatility effects for years afterwards.
All things considered, November may see a continuation of volatile conditions in the commodity and stock markets.