Global markets consolidate, but remain indecisive

April 4, 2018 10:45 AM

Investors are likely to have breathed a sigh of relief after the U.S. stock markets’ worst start to the second quarter since the 1929 Great Depression failed to encourage a widespread selloff across the global markets, as traders returned to their desks after the annual Easter holidays.

While we are still encountering quite a subdued trading atmosphere, where major stock markets are in general struggling to find their direction, we are not facing the type of selling pressure that should worry people that there is some serious distress in the equity markets. It does remain difficult to pinpoint whether trade war concerns or the recent selloff in stocks like Amazon, are driving the market volatility but there is some room to side with the latter. Another tweet from President Donald Trump reinforcing his negative view on Amazon sent the U.S. stock markets on another volatile ride overnight. It does not appear that trade tensions between the United States and China are driving the price action this week.

The general consensus is that a trade war will be of no benefit to anyone, which indicates why investors are not reacting that sensitively to the ongoing headlines between Beijing and Washington. Beijing has, as you would expect, condemned the news that the United States published a list of more than 1,000 Chinese products that it plans to hit with a 25% tariff, but it has not created much of a reaction in the financial markets as it stands.

There has been just as muted of a reaction in the currency markets, where it can be said that many currencies are not reacting as heavily to the ongoing shifts in sentiment for the equity markets as you would usually expect in a period of higher volatility. This can be seen as another reason to suggest that trade war concerns are not driving the direction of the markets, and that it is the selloff in corporations like Amazon that is behind the erratic behavior in stock markets. If investors were significantly concerned that there was a risk of a trade war, currencies like the Japanese Yen and the Swiss Franc would be performing much stronger than they have over recent trading sessions. Emerging market currencies like the Malaysian Ringgit, Thai Baht, Indonesian Rupiah and even the Chinese Yuan itself are, on the other hand, outperforming what you would expect if there were fears that a trade war is upon us.

GBP/USD attempting 4 days of consecutive gains

The British Pound appears to be attempting its fourth day of gains against the U.S. dollar during early Wednesday trading, with the Sterling receiving support after the UK manufacturing survey for March exceeded expectations yesterday. As long as the British pound/U.S. dollar (GBP/USD) currency pair maintains its ground above 1.40, there is potential for the Pound to trade higher this month. We have noticed in recent weeks that investors are potentially using the 1.40 level in the GBP/USD as a possible pivot level, before deciding what direction the pound could trade next; therefore, I will continue to monitor the 1.40 level in this pair.

If the GBP/USD manages to slip back below 1.40, it would put the Cable at risk to concluding its current run of gains. 

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