News & Analysis

Weekly Summary – Wave of Volatility

August 16, 2019

By Deepta Bolaky

Weekly Summary

It was another dreadful week with much volatility in the markets. The increased hostility between China and the US, heightened geopolitical tensions and renewed recession fears created an awful cocktail for the financial markets.

Hong-Kong Protests – At the Airport

It is the 11th week of protests, and there are currently no signs of de-escalation at this stage. The protesters took the mass demonstrations to the airport putting the country to a halt and forced the cancellations of nearly 1,000 flights earlier this week.

The unrest in Hong Kong is also creating more tensions between the US and China. We have seen President Trump voicing out his opinions while China mentioned that foreign forces must stop interfering in Hong Kong. Beijing was seen sending the military to the border as the relations between protesters and police/undercover police have worsened in those last few days.

Hong-Kong’s economy is taking a toll as the country come to a standstill.

Shares are decoupling from the US as protests intensify. If the situation persists, Hong Kong shares are on track to erase all the gains made since the beginning of the year. The equity markets took a beating this week, and the situation in the country added more downward pressure.

We also see the pressure in the housing market. The Hong Kong Housing market has been ranked as the world’s least affordable for the 9th year. The losses in the Heng Seng properties index shows that real estate stocks dropped by more than 20%. Its housing market may be heading for further trouble if the protests continue.  

Trump’s Recession – “Bonds Never Lie” 

The old saying “Bonds never lie” rattled investors as renewed recession fears crawled back into the markets this week. The brief inversion of the yield curve is sending loud signals that investors should be careful. The 2-Yr US government bonds dropped below the 10-Yr yields for the first time since the financial crisis.

The bond rally also drove the 30yr Treasury Yield to a record low.

The economic data in China and the Eurozone were the triggers that drove investors into safe-havens. Despite the announcement of delaying tariffs on Chinese good, investors were concerned about the global downturn.

Markets Reactions

Equities Market – Wave of Volatility

Risk sentiment was fragile this week. The Hong Kong protests and the election outcome in Argentina sparked a sell-off in the equity markets. Despite positive trade news, global stocks struggled to find a firm direction to the upside.

The recession fears sparked a massive sell-off in the markets.

Forex Market – The Dollar Staged A Strong Bid

It was a typical reaction where traders piled up in haven currencies like the Japanese Yen whenever fears gripped the markets. However, on Thursday, the US data came out better-than-expected defying the recession pundits.

The US dollar was firmer against nearly all G10 currencies. The Aussie dollar finds some support on trade news and was firmer against the greenback.

Source: Bloomberg Terminal

Gold – The Preferred Safe-Haven

Gold’s rally momentarily halted when the US delayed the trade tariffs. However, the latest trade and political headlines are fuelling the demand for the yellow metal as investors are fleeing the equity markets to seek refuge in safer assets.

The XAUUSD pair traded at a high of $1,527.07 but is finding resistance at a critical level around $1,528.

Source: Bloomberg Terminal

Oil Market – Demand Outlook 

The primary concern recently has been the demand for oil rather than the supply side. Trade-related tensions and recession fears have renewed the worries of global demand for oil. On top of that, bearish oil reports show US oil inventories grew again, stoking fears of a glut.

WTI and Brent Crude fell dropped to the region of $54 and $58 respectively.

Monday, 19 August 2019
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