Investor sentiment has swung back and forth this week due to the persistent uncertainty and ever-changing jigsaw puzzle that is being mapped out around global trade developments.
Asian shares are mostly mixed during early Thursday trade amid the contrasting signals that are being delivered to investors in regards to US-China trade tensions. While there is hope on one side of the table that there will be a handshake between the US and Chinese authorities at the G20 next month to smoothen the recent escalation, this is being met with news that the US government will ban Huawei's access to the US markets over national security concerns.
The conflicting signals over trade are likely to simply spark more uncertainty and confusion in the market, and investors will continue to scatter and reassess their appetite towards taking on risk as a result.
Market sentiment is poised to remain fragile over the next month in the lead-up to the meeting between Presidents Trump and Xi Jinping at the G20 summit late June. Will the world’s two largest economies ever find a middle ground on trade or a tension destined to intensify further throughout the year? This is a question nobody has the answer for. And this is why investors are nervous, especially following the spectacular swerve that has occurred over the past two weeks.
Whatever the outcome of the hotly anticipated Xi-Trump meeting, it will certainly have a lasting impact on market sentiment for the second half of the year.
Euro unable to hang on to gains
Investors who were looking for a quick opportunity to push the euro higher were given the thumbs up yesterday following reports that President Trump could delay auto tariffs by six months.
However, the euro’s upside gains are limited with prices trading around the 1.12 level against the dollar as of writing. Even though the first estimates on the eurozone and Germany’s Q1 GDP prints met market expectations, the continent’s growth outlook is expected to remain challenged by external factors in the form of trade tensions.
With the outlook for the euro fundamentally bearish amid growth concerns and the European Central Bank (ECB) adopting a cautious stance, the EUR/USD is positioned for further downside. A solid weekly close below the 1.120 level is likely to signal a move towards 1.113 and 1.100, respectively.
Commodity spotlight – Gold
Disappointing economic data from the United States and China added to the negative mood yesterday, which in turn was a welcome development for safe-haven assets.
Gold bulls remain supported by trade uncertainty and concerns over slowing economic growth and this continues to be reflected in the metal’s valuation. Prices have the potential to test the psychological $1300 level again in the coming days as market caution accelerates the flight to safety.
Focusing on the technical picture, the precious metal is bullish on the daily charts. A solid weekly close above $1300 should invite a move higher towards $1310 and $1324, respectively. With the catalysts that can significantly reverse the ongoing flight-to-safety in the near term being limited, Gold bulls remain in the driver’s seat.
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