Growth assets are spiralling out of control

Markets

Growth assets are spiralling out of control amid a synchronised global growth retreat concerns as Wall Street is amid its worst run in a decade with 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 an individual call with CEO of the countries largest banks. Which 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 slowing growth, Brexit casualties, EU slowdown. But 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 expecting the benefit of Trump’s fiscal stimulus will falter in 2019. After all, it was the US market that was carrying the weight of global risk sentiment on its shoulder. If the US economy turns south, Global capital markets are in for a world of hurt.

While investors are right to get concerned about a slowdown in economic growth, but making things worse is the turmoil in Washington be it a government shut down over a Border Wall, more key Whitehouse 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. However, given the unfavourable climate, it’s still unclear if investors cheerless mood will improve before the end of the year. While US futures have stabilised 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 reassure markets the viability of their supply cuts and even impose deeper ones as some members have suggested, global macroeconomic fears will continue to wear like and an anvil around the oil markets 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 a gold bid on dips as markets remain on very shaky grounds.

But the downdraft in Global equity markets has firmed up the major support level to $ 1255 levels.

But 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 they yellow metal has proven its weight when markets turn turbulent.

Currency Markets

US Political uncertainty continues to weigh on the USD, 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 under fire.

Euro: the jury is out on this one US political uncertainty vs weak EU economy. Most day I would favour the weak EU economy, but the swamp and numerous pollical 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-off in global equities it’s unlikely the Ringgit will make any significant headway into the New Year as risk sentiment remains incredibly weak.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Stephen Innes

Stephen has over 25 years of experience in the financial markets and currently based in Singapore as the Head of Trading Asia Pacific with OANDA. Stephen’s market views focus on the movement of G-10 and ASEAN Currencies. His views appear in Bloomberg, CNBC.Reuters, New York Times WSJ and the Economist. His media appearances include Bloomberg TV & Radio, BBC International, Sky TV, Channel News Asia, ASTRO AWANI and BFM Malaysia. Stephen has an extensive trading experience in Spot and Forward FX, Currency and Interest Rate Futures, Money Market Derivatives and Precious Metals. Before joining OANDA, he worked with organisations like Nat West, Chemical Bank, Garvin Guy Butler, and Sumitomo Mitsui Banking Corporation. Stephen was born in Glasgow, Scotland, and holds a Degree in Economics from the University of Western Ontario.

Stephen Innes

Stephen Innes