Risk aversion has been the dominating direction this week. It first started with China’s GDP growing at slowest pace since 1990, then we saw cuts to the global outlook by the IMF, followed by concerns from Chinese President Xi over a “black swan” or “gray rhino” event, today earnings mostly missed and lastly the U.S. reportedly turned down latest Chinese offer, that story was later refuted, but doubts still grew that a deal could be reached by the March 1st deadline.
Japanese Yen
The Japanese yen has rallied against most of its major trading partners as markets can’t seem to shrug off global growth concerns and the resumption of tough trade talk from the U.S. The news that the Trump administration scrapped this week’s preparatory trade talks with two Chinese vice-ministers was later refuted by White House Adviser Larry Kudlow. Even though the story was refuted, it should be expected to start to see the U.S. show a tougher stance as we near the trade truce deadline. Throughout the stages of negotiations of trade talks, the U.S. consistently provides dissatisfaction once we get closer to pivotal deadlines to enhance their negotiation stance. The issue of forced technology transfers and structural reforms to the Chinese economy are unlikely to see major progress by the March.
British Pound
The British pound rallied against all of its major trading partners as expectations are still high that we will not see a no-deal Brexit and that today’s wage data raised expectations for the BOE to deliver a hike by the fall. Today’s wage data rose to the highest pace since 2008 and it could help deliver higher inflation. Current expectations are that we could see a 65% chance the BOE raise rates at the November meeting, earlier in the month the markets were pricing a rate hike at the first meeting in 2020, a day before Governor Carney’s term ends.
Stocks
U.S. stocks returned from a 3-day weekend and delivered the worst drop in three weeks as trade tensions ramp up and earning season continues to deliver softer outlooks. The trade war escalation could continue to weigh on technology, energy and multinational businesses. Earlier this morning, poor outlooks and guidance from Haliburton and Johnson & Johnson (NYSE:JNJ) kept the narrative negative.
Commodities
Commodities got crushed across the board, except for gold. The story behind the broad-based selling is an easy one, falling demand. China growth falling to a near three-decade low, the IMF slashing global growth forecasts and many large early reporters this earning season have expressed concern with their outlooks. U.S. shale production continues to surge and pushing refiners to the highest pace in 15 years. Record stocks of fuel keep the gasoline glut in focus.
