The initial risk-on mood at the start of the week didn’t last long and yesterday market participants turned to the safe havens once again. There was no single reason why investors lost their risk appetite but rather a combination of catalysts that drove them towards the likes of the Yen and Gold; a host of bearish PMIs from around the globe and Trump’s new front against the Eurozone definitely contributed to the dovish sentiment. The Dollar lost ground versus the Yen with prices dropping below 108 again as Treasury yields lost the 2% handle and Gold rallied to $1,440.
The Dollar will remain front and center today ahead of the release of the non-manufacturing PMI figures from the US. The greenback traded sideways on average over the past 24 hours with the Dollar Index stuck around the 96.7 level but its performance was clearly a result of the risk-off bias. With Dollar/Yen dropping below 108, the Swiss Franc clawing back some lost ground and Gold exploding to $1,440 the takeaway was clear: investors are growing nervous again as the trade truce’s effect was rather short-lived.
Looking ahead, it will be crucial to see how the non-manufacturing ISM prints today as a positive reading will ease traders’ worries and help the US currency level off. However, another bearish set of figures from the domestic economy will not bode well for the US currency and global risk sentiment in general. The amicable tone coming out of the G-20 meeting suggested that the Fed could rethink their easing bias but if the data continues to indicate ongoing weakness then the calls for aggressive easing from the US central bank will re-intensify and push the greenback further to the downside.
Over to the Euro, the shared currency remained in bearish territory yesterday with prices holding below the 1.13 mark. Earlier reports from the ECB suggested that the central bank is in no hurry to ease its policy during this month’s meeting, which briefly pushed the Euro higher but the broader risk-off bias didn’t allow momentum to develop. At the same time, the nomination of Christine Lagarde as the new head of the ECB also tilts the bias on the bearish side, as she’s seen more of a dovish policymaker that will prefer to implement more monetary easing to reinvigorate growth in the Euro area.
Gold picked up pace over the past 24 hours and after having spent some time below the $1,400 area and fresh demand drove prices to $1,440. The drop in Treasury yields on the back of the risk-off mood was the catalyst behind Gold’s reaction and as the initial euphoria after the US-China truce fades away, the yellow metal again capitalizes on investors’ worries. As we mentioned yesterday, the fresh US data will be important in assessing whether the Fed will go ahead with interest rate cuts soon and if a set of bearish figures is what we get, then prices may continue travelling to the upside.
Equities were positive across the world yesterday despite the slump in global growth as seen from the several PMI reports over the past few days. This morning though, equity futures in Europe and the US are pointing lower as the risk-off bias that developed seems to be spreading into the stock markets. The release of the non-manufacturing ISM report today alongside the Durable Goods and Factory Orders data will help investors assess whether the downbeat tone in the States is transitory or not.
MARKET EVENTS TO WATCH
- US Durable Goods Orders - 6pm
- US Factory Orders - 6pm
- US ISM Non-Manufacturing PMI - 6pm
All times are GMT +4.
Written by Konstantinos Anthis, Head of Research