While waiting for three major macro events and a barrage of tech companies reporting earnings, markets adopted a cautious approach which pushed the value of gold to a seven month high.
The markets are awaiting three crucial events – a crucial vote in the UK on Brexit, the outcome of US Federal Reserve decision on Wednesday and the conclusion of the trade talks between China and the United States on Thursday. Markets in European and Asian held up relatively well.
While there was a 1 per cent increase in London’s FTSE, there were some improvements in both Frankfurt and Paris. Following a series of U.S. profit alerts, including one from mining equipment maker Caterpillar, there were benefits for utilities and other safety plays.
Market sentiment was dented to some extent by the US imposing charges against the Chinese tech firm Huawei just a few days before a crucial second round of talks on trade between the US and China in Washington.
However, pledge of greater economic stimulus in China offset that negative news.
While the financial markets and the macro economy went through this turmoil, gold went past the $1,300 an ounce value and attained its highest value since mid June last year.
“Investors are very cautious with many uncertainties on U.S.-China trade talks and Brexit. Huawei is at the center of dispute, creating very noisy background for the trade talks,” said Margaret Yang, a market analyst at CMC Markets.
“All these are making it more difficult for investors to judge the market’s direction. Money is fleeing into assets such as gold, seeking safety.”
The US dollar was remained at a two month low because of expectations of a more cautious approach by the US Fed and the U.S.-Sino moves. It also consequently increased popularity of the safe-haven appeal of the Japanese yen and the Swiss franc.
Sterling held at $1.3166 and 86.88 pence to the euro even before the UK parliament was to engage in a crucial vote on Brexit to possibly arrive at the possibility of the deal for the UK leaving the European Union. While the pound has done well since January 4 and has gained about 6 per cent, it is not likely to make much headway unless there is a big majority in the UK parliament in favour of a deal for Brexit.
There was little change in most European government bond yields. There are expectations among investors that the rates of interest would remain low because of weaker economic data and uncertainties such as the US-China trade talks and Brexit.
The markets are also eagerly awaiting the announcement of annual results by some of the largest tech companies and more than 100 of the S&P500 companies including names like Amazon, Apple and Facebook.
The market had been hit by weaker than expected earnings report and forecast and guidance from Caterpillar and Nvidia Corp , both of which blamed lower Chinese demand for lower sale.
“Both companies are seen as industry bellwethers, and their disappointing results provide further evidence that this time China’s slowdown is for real,” said Rodrigo Catril, Sydney-based strategist at National Australia Bank.
(Adapted from ChannelNewsAsia.com)