Renewed concerns about weak global growth have engulfed traders’ minds once again, and hence why we have experienced another heavy sell-off over in the US. This negativity has filtered into the Asian trading session, and as a result, the Shanghai index fell nearly 0.90% while the Hang Seng index suffered losses of 0.70%. Trader’s appetite for risk is ebbing away, with most traders looking to hedge their risks altogether.
On the upside for those with gold interests, gold has seen a resurgence because of this. Investors have piled their bets as they are not sure if the Fed could increase the interest rate seeing that we are facing an era of feeble growth in earnings. If corporate profits are not impressive enough, the Fed will have to rethink their strategy all together. We will soon have a better idea of this as we are about to embark on the next quarterly earnings season.
Another worry which traders cannot ignore is the effectiveness of the central bank’s policies. Whenever we get major economic data and it is badly battered, such as the German industrial sector data released earlier this week, it makes investors question the sustainability of central bank policies and they begin to ponder whether or not their gun powder has any impact at all. The European Central Bank is leaving no stone unturned with respect to quantitative easing to boost the growth in the Eurozone;however, the results are still minimal.
The Japanese currency has been at the centre of another major story this week, and the level which we have experienced has rung some serious alarm bells. Investors have eagerly awaited a response from the Bank of Japan to address this matter, and the finance minister today has assured that the bank will take all the necessary steps to address this strength of the Japanese yen. The stronger the currency is, the more headwinds it creates for Japanese businesses. Something that they can ill afford in the land of the rising sun.
In terms of economic data, we will kick start the day with the UK manufacturing production m/m number which will hit our screens at 08:30 GMT. The forecast is for -0.2% which is a lot softer compared to the previous reading of 0.7%. It is not surprising to see the forecast skewed towards the downside given that a major player, Tata Steel, has decided to call it a day with respect to their operations over in the UK due to higher costs. Moreover, worries over the Brexit has also directly impacted this. Later in the day, we have an FOMC member speaking about the economy. It will once again be nothing but more than empty noise in the market about the interest rates. Also, the fragmented view among the policy makers over in the US will continue to increase the headwinds for investors.
By Naeem Aslam