Fixed
asset investment in China grew at its slowest pace ever, despite authorities
announcing several measures to stimulate the economy through fiscal and
monetary policies. Meanwhile, industrial production and retail sales also came
below forecast in a clear sign that growth in the world’s second largest
economy is cooling.
Investors
are becoming increasingly worried about how the Turkish crisis would spread
into other markets after yesterday’s EM currencies and equities selloff. So
far, we think the risk of contagion is limited and yesterday’s selloff was due
more to a risk-off mood than a fundamental reason. However, economies with
large current account deficits such as India, Argentina and South Africa will
come under increased economic pressure as the Fed continues to tighten monetary
policy.
Gold below $1,200
Many
investors were surprised by the gold selloff yesterday which fell below $1,200
for the first time since March 2017. Gold is perceived to be the safest haven
in times of turmoil, so why not this time? The precious metal has been in a downtrend trajectory since mid-April and has
lost 12% from previous 2018 highs as the Dollar managed to strengthen against
all EM currencies.
Gold
has been showing a very close correlation with EM currencies, especially the
Chinese Yuan. This is mainly because emerging markets are the biggest consumers
of physical gold, particularly China and India. The further these currencies
drop, the less purchase power consumers have; as long as investors believe we
won’t see a crisis similar to 2008, the Dollar and the Yen will continue to be
the safest plays. However, the moment
investors believe that the situation will get out of control and the global
economy will fall into a deep recession, gold’s luster will return.
Cryptocurrencies
also suffered steep losses
Cryptocurrency
bulls also suffered a steep selloff yesterday with Bitcoin falling below $6,000
for the first time since late June. The blame for this falls on the SEC as the
U.S. regulator delayed a decision to create the first Bitcoin ETF.
If an
ETF doesn’t see the light in the coming weeks expect to see a further selloff,
as it suggests regulators will continue to fight against bringing
cryptocurrencies into the mainstream. A break below $5,770 will intensify
selling pressure as it’s the only major support still standing.
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