MARKETS FALL AS INVESTORS FEAR EMERGING MARKETS CONTAGION
World’s stock markets traded lower today as investors’ worries on trade and emerging markets grew. On Friday, the much-touted deadline of US and Canada trade deal passed and Trump’s incendiary comments about Canada will make a deal difficult to reach. In off-the-record comments, the US president reiterated that a deal between US and Canada will happen on US terms. This angered Canadian officials, who said that the comments were unhelpful at a time when the three countries were trying to find a compromise.
Emerging Market problems continued today after the Indonesian central bank was forced to intervene. This happened after the Indonesian Rupiah fell to the lowest level in more than 20 years. This led to a needed intervention by the Bank of Indonesia with the aim of stabilizing the economy. This comes after Argentina’s central bank was forced to hike interest rates to 60% to rein in inflation. The Argentinian crisis came after more inflation issues in Turkey led to the Turkish lira falling by 70% against the US dollar. Traders are concerned that the ongoing emerging market crisis could lead to contagion, which could affect the world markets.
The sterling fell today in response to the opinion article penned by Theresa May. In the article, the PM said that she was unlikely to support a Brexit proposal that goes against her Chequers proposal. This was a response to the statement a week ago from the Chief EU negotiator who said that there were areas he disagreed on. This means that the EU and the UK could remain in a conflict that exposes the UK to a hard Brexit scenario. The sterling’s decline was accelerated by the disappointing 52.8 for the Manufacturing PMI. This was lower than the expected 53.9.
Meanwhile, in the EU, the manufacturing PMI numbers were disappointing. The EU manufacturing PMI was unchanged at 54.6. The German manufacturing PMI was at 55.9, which was lower than the expected 56.1 while the French PMI was at 53.5 and was lower than the expected 53.7. These numbers reflect the ongoing challenges in the EU manufacturing sector as the region battles with the United States.
The Australian dollar fell after disappointing retail sales numbers. The numbers showed that retail sales in July were unchanged. This was less than the expected 0.3% growth and June’s growth of 0.2%. This data came a day before the RBA released its interest rate and monetary policy statement and two days before the country released its final reading of the second quarter’s GDP numbers.
The EUR/USD pair was little moved today as US traders celebrated Labour Day. The US markets will remain closed today. The pair is trading thinly at 1.1610. Last week, the 50-day EMA crossed the shorter-term EMA in a bearish manner. Since then, the pair has moved lower. As a new month starts, and as traders wait for employment data on Thursday and Friday, the pair is likely to continue moving lower, with the key support expected at 1.1530.
The GBP/USD pair started moving up on August 14. It managed to move from a low of 1.2660 and reached a high of 1.3042 on Friday last week. Today, the pair fell sharply after major disagreements between Theresa May and the Chief EU Brexit negotiator. It is now trading at 1.2860, which is an important support level. The price is below the 50 and 25-day EMA. Further downward movement will see the pair test the important 1.2800 support level.
The Aussie dropped sharply to an intraday low of 0.7165 after Australia’s retail sales disappointed. This was a continuation of weak economic data from the country. The pair recovered and reached an intraday high of 0.7215. On the hourly chart shown below, the shorter-term EMA is attempting to cross the longer-term EMA. This could mean that a strong reversal is likely. If it does, the pair will likely test resistance at the 0.7237 level.