Tuesday, 27 August 2019


President Donald Trump
Han Tan  
FXTM Market Analyst

Asian stocks followed their US counterparts higher, as markets gave a measured response to US President Donald Trump’s latest comment about US-China trade talks restarting. The Dollar index is testing the 98 psychological level at the time of writing, with G10 and Asian currencies offering a mixed bag of results against the Greenback.

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Although Trump’s recent comments allow investors to cling on to hope that a US-China trade deal is still possible, it remains to be seen whether or not Trump’s comments prove to be green shoots or a false dawn over the prospects of a meaningful US-China trade deal. Despite the seemingly hopeful commentary, investors are well aware that multiple rounds of trade talks have only led to the current dismal situation, whereby repeated tariff threats have become the norm.

Global investors have had their emotions toyed with amidst the ever-shifting sands of the US-China trade conflict. Market nerves have been left raw, with the delicate sentiment prompting knee-jerk reactions to every nuance pertaining to the highly unpredictable US-China trade impasse. Until there are clear signs of progress in US-China trade negotiations, risk-aversion will continue to dominate market sentiment, with safe haven assets maintaining their appeal among investors.

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Broader demand for safe havens remains intact, despite paring recent gains
Safe haven assets are giving up some of their recent gains - Gold has moderated towards $1530 despite breaching $1555 on Monday, the Japanese Yen couldn’t hold its stay below the 105 mark against the US Dollar, and 10-year Treasury yields’ presence below the 1.50 percent level proved short-lived. Markets are finding any excuse to push back into risk-on territory, although such forays may be based on fleeting emotions. Given the persistent nature of the US-China trade conflict, which has injected greater doses of recession fears into the markets, the overall demand for safe haven assets is expected to remain resolute. With new and heightened tariffs set to be levied on US and Chinese goods by next week, safe haven assets could still claim more upside over the near-term.

Oil snaps 3-day losing streak amid muted optimism surrounding US-China trade talks
Brent Oil is currently trading around $59/bbl, even as it breaks a 3-day losing run. The near-term upside for Brent futures appears capped at $61/bbl, a key resistance level in recent weeks, given the escalated fears over a global recession.

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Barring a sudden thawing in US-China trade tensions, the barriers to global trade are set to be raised next week, which could see the pace of global growth shifting another gear lower while dampening demand for Oil. Brent’s performance over the coming months is expected to remain highly sensitive to developments surrounding the US-China trade impasse, as demand-side uncertainties threaten to upend the ongoing OPEC+ supply cuts programme.

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