Asian markets are pushing tepidly higher after the S&P closed flat, as investors are being fed more woeful signs about the global economy. Germany’s September manufacturing PMI fell further into contraction territory, while France’s industrial sector recorded scant expansion during the same month.
The world’s economic growth momentum has stuttered amid heightened global trade tensions, prompting investors to keep safe haven assets at elevated levels. Gold remains near its 2-week high and is trading above $1520, the Japanese Yen is holding above the key 107.5 level versus the US Dollar, while yields on 10-year Treasuries are testing the 1.70 support level. Any sudden spike in geopolitical or trade tensions, along with a rapid deterioration in the global economy’s projected path forward, is expected to return safe haven assets to 2019 highs.
Euro pushed below psychological 1.10 mark against Dollar amid pronounced EU economic woes
The Euro is still trading below the psychological 1.10 level versus the US Dollar, following the dismal PMI figures out of Germany and France. With EURUSD having fallen by more than four percent so far in 2019, there’s scant reason to think that the bloc’s currency can see a rebound anytime soon.
Even with the support measures rolled out by the European Central Bank as well as the limited fiscal stimulus in Germany, investors are not entirely convinced that will be enough to offset the challenges that beset the EU economy. Until there is a meaningful resolution to both US-China trade tensions as well as the Brexit impasse, the EU economy is expected to remain mired in its current dismal state. Such a dreary economic outlook for the EU will only serve to keep the Euro pinned down around the 1.10 mark.
Dollar remains steadfast despite market expectations for one more Fed rate cut in 2019
The Dollar index (DXY) is still trading above the 98.6 level, even as Federal Reserve Bank of St. Louis President James Bullard continues to telegraph the potential need for more “insurance” interest rate cuts. The Fed Funds Futures currently price in one more 25-basis point cut in October, before leaving the benchmark interest rate unchanged through January.
Despite the dovish bias shown by the Federal Reserve, the Dollar remains buoyed by the US economy’s outperformance relative to its major, developed peers. The Greenback’s safe haven status is fueling its resilience, amid the swirling concerns over the deteriorating state of the global economy.