Asian stocks were under renewed selling pressure this morning as global trade concerns and chaos across emerging markets weighed on risk appetite. Global trade developments have certainly placed investors on an emotional roller-coaster ride this week with the initial optimism over NAFTA talks outweighed by U.S.-China concerns. Market sentiment is likely to remain cautious, especially after President Donald Trump threatened to withdraw the United States from the World Trade Organisation.
With recent reports of Trump voicing his support to impose new tariffs on China, possibly intensifying concerns over U.S.-China trade tensions, risk aversion could remain a dominant theme in the short to medium term.
Emerging market currencies have been beaten black and blue by investors following a brutal selloff in the Argentine Peso and Turkish Lira. The Argentine Peso collapsed after Argentina requested for the International Monetary Fund (IMF) to speed the release of a $50 billion loan, while the Lira crumbled on reports of the Turkish central bank’s deputy governor Erkan Kilimci resigning. Although the Lira stabilized against the Dollar this morning, gains may be capped by concerns over double-digit inflation, a deepening account deficit, and looming U.S. sanctions. Emerging market currencies are likely to remain pressured by the economic turmoil in Argentina and Turkey, while external factors ranging from global trade tensions and prospects of higher rates could intensify the pain.
The dollar edged higher against a basket of major currencies during early trade, as U.S.-China trade tensions boosted its safe-haven appeal. With the US economy growing faster than initially estimated during the second quarter, market expectations remain elevated over a rate hike in September.
There could be some action with the British pound as Brexit Secretary Dominic Raab meets Michel Barnier in Brussels today for further Brexit talks. If the talks end on a positive note and fears of a “hard Brexit” ease further, the Pound could receive a solid boost.
In the commodities arena, gold prices inched higher as global trade tensions and renewed turmoil in emerging markets encouraged investors to seek safe-haven assets. However, the yellow metal still remains on course for its longest monthly losing streak since 2013. With the Dollar supported by the bullish sentiment towards the US economy and expectations heightened over higher interest rates, the outlook for gold remains tilted to the downside. Focusing on the technical picture, prices have scope to challenge $1,214 if the $1,200 support holds. Alternatively, a breakdown below $1,200 per oz. could encourage a decline to $1,190 and 1,182, respectively.