Markets
Growth assets are spiraling out of control amid concerns of a synchronized global growth retreat, as Wall Street endures its worst run in a decade. The market is on course to have it’s worst December since 1931, during the Great Depression. Let that sink in for a minute.
Against that backdrop, the financial world was astonished that Treasury Secretary Steve Mnuchin tweeted, with little rhyme or reason, that he was convening the PPT (Plunge Protection Team) while making individual calls with the CEOs of the country's largest banks. This triggered memories of 2008 GFC as investors asked themselves, what does the US Treasury see that no one else does? Which likely did more harm than good to investor sentiment.
But there’s an endless laundry list of concerns: Trump berating the Fed, trade wars, China's slowing growth, Brexit casualties, EU slowdown. Then, when you factor in a downturn in the US economy, this is when things get ugly.
We knew China and EU were struggling, but now the markets are in panic mode that the US economy is tanking which will cause the benefit of Trump’s fiscal stimulus to falter in 2019. After all, it was the US market that was carrying the weight of global risk sentiment on its shoulders. If the US economy turns south, global capital markets are in for a world of pain.
While investors are right to get concerned about a slowdown in economic growth, making things worse is the turmoil in Washington, whether a government shut down over a border wall, more key White House staff vacancies or Trump constantly berating the Fed. The bottom line: Investors are losing faith because Trump is turning into the type of president many always feared— unpredictable, unsettled and unrestrained.
These are incredibly tricky markets to decipher as the outsized moves are not reflective of the current US economic landscape, but that seems to matter little so far as fear mongering continues to permeate every pocket of global capital markets. And while it does look like some substantial post-Xmas holiday sales are on offer in global equity markets, given the unfavorable climate, it’s still unclear if investors cheerless mood will improve before the end of the year. While US futures have stabilized in early APAC trade, as we’ve seen so often over the last three months, downside momentum has a way of building through the day.
Oil Markets
US equity futures are trading a bit firmer this morning triggering some little buying interest in the oil markets. But at this point, unless OPEC pulls a rabbit out of the hat and reassures markets the viability of their supply cuts and even imposes deeper ones as some members have suggested, global macroeconomic fears will continue to wear like an anvil around the oil market's neck.
Gold Markets
Holiday-thin trading conditions are likely to prevail, but with US equity market futures showing a bit of life this morning, long gold positions are taking profit. So far today risk assets are trading peacefully but as we’ve seen so often over the last three months, downside momentum has a way of building through the day which should keep gold bid on dips as markets remain on very shaky ground.
But the downdraft in global equity markets has firmed up the major support level to $1255.
Still, overall the latest move on gold should be a stark reminder to investors that gold in any form should be an essential part of any long-term investment strategy as again the yellow metal has proven its weight when markets turn turbulent.
Currency Markets
US political uncertainty continues to weigh on the US dollar, but we should continue to see outsized USD moves vs JPY and CHF trading in consort with the S&P correlation as US market exceptionalism is under fire.
Euro: the jury is out on this one US political uncertainty vs weak EU economy. Most say I would favor the weak EU economy, but the swamp and numerous political sinkholes in Washington are too hard to ignore.
Malaysian Ringgit: With oil prices trading lower and markets still fretting about global growth concerns, triggering intense sell-offs in global equities, it’s unlikely the ringgit will make any significant headway into the New Year as risk sentiment remains incredibly weak.