- Risk aversion ignited by sharp US manufacturing contraction
- UK Prime Minister Boris Johnson set to unveil revised Brexit proposal
- Dollar shaky ahead of ADP Non-Farm Employment Change figures
- Gold shines on risk-off sentiment
A wave of risk aversion is set to sweep across financial markets after disappointing data from the United States spooked investors and reinforced concern over decelerating global growth.
ISM Manufacturing PMI in the US dropped to 47.8 in September 2019 from 49.1 in the previous month, its lowest level since June 2009. Although manufacturing only accounts for roughly 12% of GDP, a slump in the sector will most likely have knock-on effects that negatively impact the whole economy. Repeated weakness in the largest economy in the world is seen draining investor confidence and eroding risk appetite.
This negative sentiment is also being fueled by the World Trade Organization (WTO), who has joined the growing list of major institutions expressing concerns over trade uncertainty and challenging global macroeconomic conditions. The WTO cut its global trade growth forecast for 2019 to the weakest level in a decade amid US-China trade disputes and geopolitical risk factors. Given how growth is now projected to rise by only 1.2% in 2019, compared to the 2.6% forecast made in April, the global outlook looks increasingly dismal.
Stocks in Asia are trading lower on Wednesday as investors maintain a safe-distance from riskier assets amid rising fears of a global slowdown. The risk-off mood is likely to drag European shares lower as market players rush to safe-haven assets like Gold and the Japanese Yen.
Pound shivers as Johnson prepares to issue Brexit ultimatum
Investors should fasten their seat belts and prepare for some Pound volatility as Boris Johnson presents a “final offer” alternative Brexit deal to the European Union on Wednesday.
There has been alot of noise around Johnson’s final Brexit plan with reports of leaks to the proposal adding to the uncertainty and drama. If the EU squarely rejects the plans, Sterling will fall sharply as fears of a no-deal Brexit jump.
Focusing on the technical picture, the GBPUSD is under pressure on the daily charts. Sustained weakness below 1.2300 should see a decline towards 1.2200.
Will US ADP data add to the Dollar’s woes?
Dollar traders are awaiting the ADP employment report scheduled for release on Wednesday.
This is expected to show a gain of 140,000 jobs in September compared the 195,000 seen in August. US bond yields will likely take a leg lower if the data fails to meet market forecasts.
Taking a look at the technical picture, the Dollar Index remains in an uptrend on the daily charts. Prices are trading above the daily 200 SMA while the MACD trades to the upside. Price action suggests that the Dollar is still considered as a safe-haven asset in times of uncertainty. A decisive breakout and daily close above 99.50 may open the gates towards 99.80 and 100.00 respectively. Alternatively, if the Dollar Index fails to push above the 99.50 level, prices could dip towards 99.00.
Commodity spotlight – Gold
Gold bulls have been thrown multiple lifelines in the form of Dollar weakness, disappointing US economic data and renewed fears over slowing global growth. The precious metal is positioned to push higher this week if risk aversion remains a dominant market theme. Looking at the technical picture, an intraday breakout above $1485 should inspire an incline towards the psychological $1500 level.