Monday, August 5, 2019

The world is in the midst of chaos: US vs China; Japan vs Korea; North Korean missiles out; Gold surge

  • Dollar
  • Gold
  • Yen
  • Euro
  • Pound
  • Stocks
  • Oil

The US Labor Department reported that non-farm payrolls increased 164k in July, just 1k below the 165k consensus. Wages increased 3.2% y.o.y., topping expectations by 0.1%. The unemployment rate remained at 3.7%. Major stock indexes and the dollar had little reaction on the non-farm payroll report as both were already down in premarket trading before the report, thanks to the US re-escalation of trade war to China. 

All three major US indices slumped to their lowest levels since June, with the S&P 500 and Nasdaq recording their worst weekly losses of 2019 on Friday. Both offshore and onshore Chinese yuan fell sharply and broke the key 7 level’s threshold, the CSI 300, China A50 and Hang Seng indices were all dropped 1-3% this morning.
Non-farm payroll report somehow has proven the Fed’s stance on “mid-cycle adjustment” instead of a “beginning of a Monetary easing cycle”, and justified the Fed decision made last Wednesday, to lower the rate by 0.25% but not 0.5%. The Job market indicating the US economy with a steady and solid growth, provide a proof for the Fed officials not to lower further the rate. 

However, on the other hand, the US-China trade war, Japan-Korea trade war, Brexit issues arouse a further fear to the market, the market looks even dimmer to the outlook of the global economy and the US rate future. In accordance with the CME Fedwatch, the fed fund futures indicated a 100% rate cut in September, with 21.2% probability of a 0.5% rate cut.

Target Rate Probabilities for 18 Sep 2019 Fed Meeting

Almost all stock markets were sinking from last Friday till this Monday, whilst only safe-haven assets are soaring, for instance, Gold price reached up to $1450/ounce and USD/JPY sank to break 106’s level, which is the lowest this year. It is expected that the stock market may still open in a very weak outlooks in the early session, but when the market finishes to digest all the negative fears from trade wars, the decline may get narrowed, which may also narrow down the current upsurge of Gold and Yen price from the earlier session today. 

At GMT+4 18:00, the US will release ISM non-manufacturing index, the market projected a rise to 55.5 from the prior 55.1. Should the figure be beat the projection, the dollar will may change its declining trend and gain support at around 97.70-97.82’s level.

US Dollar Currency Index