- Gold, Yen boosted by risk aversion
- US-China ‘phase one” trade deal won’t solve world’s economic woes
- Dollar softens ahead of NFP print
- Fed’s data-dependent stance to be tested
Asian stocks are mixed after China’s Caixin manufacturing PMI data for October came in at a better-than-expected 51.7, marking three consecutive months of faster expansion for the sector. The manufacturing data appears to highlight the resilience of the Chinese economy amid global trade tensions.
Still, safe haven assets have been elevated by rising concerns over the US-China trade relationship. Media reports claiming that China is expressing doubts about a ‘comprehensive, long-term” trade deal with the US, come as both economic powerhouses prepare to sign a ‘phase-one” trade deal later this month.
Gold is back above $1500 as it climbed beyondits 50-day moving average, while the Japanese Yenspiked lower, strengthening 0.75 percent to now trade around the 108 level versus the US Dollar. 10-year US Treasuries yieldshave fallen below 1.70 percent for the first time since October 15.
Investors harbor propensity for safety
The market’s response to the recent trade-related headline once again lays barethe underlying jitters among investors, who are prone to risk aversion when reminded of the protractedtrade conflict. The US-China truce is not yet on solid ground and it remains to be seen whether the official signing of the limited trade agreement will actually lead to substantially improved ties between the world’s two largest economies.
Even if the ‘phase one” deal is signed this month, global economic conditions will not fully rebound as long as existing tariffs remain. Considering the lingering concerns over the state of the global economy, safe haven assets should remain broadly supported, while the upside for emerging-market assets appear capped for the time being.
Dollar awaits US jobs catalyst
The Dollar index (DXY) has fallen below the 97.30 level, having sealed its biggest monthly decline since January 2018.Investors now await the October US non-farm payrolls data with markets expecting an increase of 85,000 jobs in October. Expectations are for a fairly weak report in terms of job growth due to the strike at General Motors, who are counted as unemployed in the jobs report. Asignificantbeat between the official print and investors’ expectations could prompt a sharp move in DXY.
The US economy has now become more reliant on consumers as its primary growth driver, amid expectations that its manufacturing sector remained in contraction territory for a third consecutive month in October. That said, both Markit PMI manufacturing and regional surveys suggest ISM manufacturing, released after US payrolls, has risen in October.
With Fed Chair Jerome Powell estimating that risks to the US economy have subsided, investors will be holding policymakers to their data-dependent stance with greater fervor. A sudden deterioration in economic conditions could yetprompt the FOMC to resume its policy easing, even though Powell insisted this week that US monetary policy is in a ‘good place”, having already made three consecutive 25-basis-point cuts to US interest rates this year.
