Markets React to Trade Uncertainties – 10 October 2019

Reports that the trade talks between the U.S. and China are stalling sent gold to a one-week high and oil prices lower on Thursday afternoon in Asia. The South China Morning Post reported that the lower-level talks that took place earlier this week were unsuccessful. Even though the White House denied this report to CNBC, the markets were unable to shake off the negative report in advance of the higher-level talks that are set to start in Washington later today.

Spot gold gained 0.4 percent to $1,511.24 per ounce early on Thursday, hitting a one-week high as traders flocked to the safe-haven asset. In contrast, oil prices slumped, with U.S. WTI futures and Bret crude futures both down 0.19 percent as of 12:25 p.m. HK/SIN. Brent crude futures were trading at $58.21 per barrel while U.S. WTI futures were at $52.49 per barrel, as concerns that the trade war would persist worried traders that demand for oil would decline.

On Tuesday, Federal Reserve Chair Jerome Powell noted that he would be wiling to implement additional stimulus measures in order to counteract global economic risks, though such measures made by other global central banks have thus far done little to boost the global economy and to restore investor confidence.

Despite Powell’s statement, Reuters reported that Fed policymakers are increasingly divided on how to address the ongoing global economic slowdown. Since the last Fed meeting in mid-September, data has shown that trade concerns are fueling economic movements. U.S. manufacturing fell to a 10-year low in September, and service sector activity hit a three-year trough. Consumer spending which has remained strong in the face of the trade tensions has also begun to slow down.

Among those hesitant to cut interest rates further are Boston Fed President Eric Rosegren and Esther George, the President of the Kansas City Fed. They claim that as long as unemployment remains at historic lows and the economy continues its moderate growth, such cuts would be unwarranted.

The U.S. dollar index was 0.11 lower in the early afternoon on Thursday, trading at 099.00 .DXY. The dollar eased modestly against the yen, down 0.02 percent to 107.45, while the British pound and the euro both surged against the greenback. The sterling was up 0.18 percent to $1.22226, and the euro was up 0.15 percent to $1.0985.

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