The pain felt across global equity markets intensified today as growing fears of a U.S. government shutdown crippled risk sentiment.
It has been a remarkably terrible trading week for financial markets amid concerns over rising U.S. interest rates, decelerating global growth, Brexit uncertainty and chaos in Washington. The absence of appetite for risk was clearly reflected in Asia this morning as stocks closed broadly lower. In Europe, shares are trading in a depressed fashion and this negative mood is likely to infect Wall Street this afternoon. With geopolitical risk factors weighing heavily on investor confidence, financial markets remain at threat of concluding 2018 on a risk-off tone.
While market activity is expected to drop significantly next week ahead of the upcoming Christmas holiday break, investors should remain diligent. With the economic calendar virtually void of Tier 1 economic reports, there could be some semblance of stability just before the New Year.
Is the Dollar bull party over?
It has not been the best of trading weeks for the Dollar despite the Federal Reserve raising interest rates and even sounding less dovish than expected.
Fears over slowing economic growth in the United States is clearly threatening the Dollar’s status as a safe-haven currency. With the flattening U.S. Treasury yield curve earlier in the week flashing warning signals to investors, the Dollar has been mostly depressed and unloved. With the Federal Reserve adopting a data-dependent approach towards monetary policy normalisation, there will be a strong focus on U.S. economic data moving forward. Investors will be keeping a close eye on the pending U.S. GDP data which should offer fresh insight into the health of the largest economy in the world. Dollar bulls are likely to be injected with fresh inspiration if the GDP report dishes out an upside surprise.
Commodity spotlight – Gold
Gold has clearly benefited from the market chaos this week with prices trading around $1,260 as of writing.
The combination of Dollar weakness, volatile equity markets and expectations of fewer rate hikes in 2019 boosted buying sentiment towards the yellow metal. With prices already breaking above the $1,260 level, the next key level of interest can be found at $1,272. Gold has the potential to shine into 2019 if bulls are able to secure a yearly close above $1,260.
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