Theresa May needs to get more clarification on the Irish backstop, sterling may move towards the 1.30 mark. Investors focus on Chinese GDP growth while investors increase gold holding
Investors are concerned about the equity markets despite the fact that there are hopes that trade tensions are going to subside and there will be no further growth damage because of the on-going trade war between the US and China. Stocks over in Asia posted modest gains but the momentum has failed to feed into the European markets. Having said this, it is important to keep in mind that the S&P500 index did hit the highest level since early December on Friday and the only fact which spurred the confidence was optimism around the next round of discussion between the US and China trade talks.
Another profound evidence of the fact that investors are cognizant of the possibility of a small recession ahead of us comes from the gold exchange-trade fund. Global holdings in the gold exchange fund show that investors favour safe haven over riskier assets and this is despite the fact that we have seen some strong rally in the global equity markets. And if you look at the price of gold, it had the biggest jump during the month of December and this mainly due to the Fed showing their dovish hand.
The rise in gold holdings becomes ever more plausible when you look at the economic situation on the other side of the Atlantic Ocean. China is clearly going through a rough economic patch. The fourth quarter’s growth came at the slowest pace (6.4%) since 2009. Having said this, if you look at the consumption and the fact that investments have become stable, this also signals that perhaps the bottom may be in place in terms of slower growth for the Chinese economy.
As for the Brexit, it appears that Theresa May has finally decided that the best way to resolve the current chaos is to get a solution of the Irish backstop from the EU rather than have an attempt to secure support from other parties. She has always hesitated to re-open the Brexit deal because it wasn’t something which was established overnight, it took Britain 10 months to establish it and renegotiating the deal again would not be that easy at all. Nonetheless, the time is running out and whatever she wants to do, she needs to factor in the ticking clock. The Brexit deadline is coming close and the EU is still split in relation to the extension of the deadline and how long the delay should be- with some pushing for an extension up to a year. It certainly is better for the Brexit negotiations if Article 50 is pushed for a few more months so that both parties can make an appropriate decision but an extension of
The British pound is up on the hopes that the UK will get an orderly Brexit and the EU members will work with the UK in order to avoid a disorderly Brexit. The hopes are that the UK reach an agreement with EU and the only thing which it needs is time to figure out the solution. The Pound has touched a level of 1.29 today and it still remains to be seen if the momentum is strong enough to push the currency beyond the 1.30 mark against the dollar.
