Risk on trade has taken a back seat as investors measure the emerging markets rout.
Asian markets have traded strongly in the red territory and this pessimism amidst investors has taken over in Europe. Basically, crisis in the emerging markets is on the forefront and this has pushed investors in the risk off mode. Of course, the evidence of this can be seen by just looking at the safe haven assets where the shining metal sits on the top along with the green back.
South Africa, one of the strongest economies in the region, has slipped back in recession and this triggered the contagion fear among traders. If you look at the emerging markets currencies, they have tumbled toward their record low. Yes, we are referring to Indonesia, Argentina and Turkey. These currencies are driven towards their record lows because of three major reason; firstly some domestic issues, secondly a very highly speculative market where adventurers are squeezing more bloods out of the current trade and finally, the rise of the mighty dollar.
On top of the emerging markets crisis, investors also have to deal with Trumps threats to ramp up further pressure on the second biggest economy of the world due to his own trade dispute agenda. Chinese products could see another $200 billion worth of tariffs, something which is not easy to digest or in other words it will pull the rug off from investors who believe that the global economic growth is strong.
Canada remains on the centre stage as the talk begin again among Canada and the US and the focus is if this will open the door for any kind of negotiation. Investors have hoped that perhaps Trump will be able to strike a deal with Canada and make the country part of the same agreement as with Mexico. If Canada does not become the part of the agreement and the US president escalates the tension further with the country, the whole situation would become worrisome for investors. The reason is simply, on one hand they have to think about the tit-for-tat reaction from Beijing (should the president go ahead with the implementation of the new tariffs) and then on the other hand, there are serious qualms about the emerging markets rout to become even more serious.
Drilling further into the risk appetite, North Korea stayed on the back seat for fairly some decent period. But this is likely to change soon. Traders have remained sceptical when it comes to North Korea, nonetheless, in the absence of any new threatening headlines things have been fairly smooth. This was mainly due to the fact that President Trump convinced the markets that the country is no longer a threat. However, over the last few months, his frustrations have started to surface again because the negotiation process isn’t moving forward. Hence, investors fear that President Trump may move back to his traditional war of words and open the attack by using his favourite weapon-Twitter. The country’s speed and efforts for disarming itself from nuclear arsenals have been poor and Trump can just jump on this issue anytime which would result in heightened tensions in the region.
