Amid fresh warnings on global growth, the risk-off sentiment prevails in the global markets on Tuesday. The IMF cut its forecast for global growth in 2019 and now expects the GDP will grow only 3.5%, the lowest rate in three years. Against this backdrop, European stocks are losing ground today with bank shares are leading the market lower. UBS shares plunged by over 4% after the earnings missed estimates. Meanwhile, the mixed ZEW report doesn’t add the optimism in the region. As such, German DAX 30 sheds 0.46% to 11,084, Italy’s FTSE MIB declines by 0.78 per cent to 19,484, Britain’s FTSE 100 loses 0.33 per cent to 6,947, while France’s CAC 40 declines by 0.52 per cent to 4,842.
US stock index futures point to lower start as trade worries and political risks weight. As for the latter, the US government shutdown has entered its 32nd day on Tuesday. And it looks like the political crisis won’t be resolved any time soon. While McConnell is expected to call up legislation to advance a proposal from Trump, Democrats have already said they will reject the proposal. So far, investors refrain from pushing the ‘panic’ button and the dollar seems to be generally shrugging off the political situation in the country, but should the shutdown persist, this factor could add to concerns over the economy.
Dollar is mixed against majors. EURUSD struggles for a direction, oscillating around the 1.1360 area. Earlier in the day, the common currency derailed the 1.1350 region but managed to stay afloat, trading marginally lower on the day. However, the downside risks for the pair are rising ahead of the ECB meeting this week as Draghi could express a cautious and ‘dovish’ tone when speaking on economy and global risks. So after a short-term consolidation, EURUSD could accelerate its downside move in the days to come, while dismal economic data play against the euro as well.
USDJPY continues its downside correction amid a risk-off environment. Despite the safe-haven yen demand, the Japanese yen so far struggles to push the greenback below the 109.00 handle. Once below this level, the short-term dollar prospects will worsen. Meanwhile, risk sentiment will continue to set the tone for the currency pair, and while investors avoid a panic selling, the bearish potential for the buck is limited. The next major event for the pair is the bank of Japan meeting.
Brent crude is losing ground along with global shares. The market behavior confirms its growing sensitivity to global sentiment. After a brief rally towards $63, oil has attracted profit-taking that sent the priced to lows marginally above the $61 figure. One of the major concerns for the markets is the evidence of slowing growth. This factor will remain the key driver for prices this year, along with relations between the US and Iran. China’s 2018 GDP expanded y lowest rate since 1990, South Korea’s economy slowed to a six-year low, while the IMF downgraded 2019 global growth forecast. All these signals point to the potential slowing demand which could hurt oil prices down the road. In the short-term, the bearish potential looks limited but the pressure may increase if the risk aversion intensifies.
Gold makes recovery attempts after a three-day decline. The current investor sentiment is not negative enough to spur a sustainable rally in the yellow metal. The prices could go lower before buyers reemerge at more attractive levels as the bullion continues to stay above the $1.275 handle. Gold needs further confirmation of slowing global growth, another escalation of trade tensions, or more political uncertainty to stage an impressive rally. Until then, the upside potential will likely remain timid.
Nathan Lambert, Head of Global FX Analytical Department