Global stocks slide on Hong Kong, German, and Argentinian fears
It was a sea of red in the world’s stock market as investors continued to worry about global growth. The focus among investors was Hong Kong, where anti-government protests continued. The protests led to the closure of the airport for the second straight day. In response, Carrie Lam warned that the city was sliding into an abyss. Investors also reacted negatively to a plunge in Argentinian assets. The main index declined by 35% while its currency declined by 25% against the USD. This happened after Mauricio Macri lost the first round of elections by a wider margin than was expected.
In addition to the Hong Kong and Argentina issues, investors were also worried about Germany. Stocks declined sharply after the expectations of the German economy slumped to the lowest level since the Eurozone debt crisis in 2011. A survey by Zew on the economic sentiment declined to minus 44.1. This was much lower than the consensus estimates of -28.5. In July, the index was at minus 24.5. Meanwhile, the polled experts showed the current conditions in the month were -13.5, down from the previous -6.5. In recent months, data from Germany has been gloomier, fueled by a slowdown in the industrial and manufacturing sector. Uncertainties surrounding Brexit have not helped.
In the United Kingdom, the employment data were mixed. The unemployment rate rose slightly to 3.9%. This was higher than the previous 3.8%. On a positive note, the economy created more than 115k jobs in June. This was much higher than the jobs 65k jobs that were created in May. The claimant count declined by 28k. This was better than the consensus estimates of 32.0k. Wages increased too. The average earnings index (plus bonus) increased by 3.7% in the month. This was better than the previous 3.5%. With the bonus included, the earnings increased by 3.9%. While these numbers were good, investors are still worried about the shock of a no-deal Brexit.
In the United States, data showed that consumer prices moved slightly higher in July. In the month, the core CPI rose by 2.2%, which was higher than June’s increase of 2.1%. Investors were expecting the CPI to have remained unchanged. On a MoM basis, consumer prices remained unchanged at 0.3%. In the month, the headline CPI increased by 1.8%, which was higher than the consensus estimates of 1.7%. On a MoM basis, the prices rose by 0.3%.
The EUR/GBP has been on a strong upward trend since May 8th when it was trading at 0.8490. Today, the pair is trading at 0.9280, which is slightly below yesterday’s high of 0.99327. This is the highest level since October 2017. On the daily chart below, the price is slightly lower than the upper line of the Bollinger Bands, while the RSI is along the overbought level. The momentum indicator is above the 100 level. While the pair will likely continue moving higher, there is a likelihood that the upward trend could fade.
The USD/JPY pair declined to an intraday low of 105.03. This was the lowest level the pair has been since March 2018. The strong Japanese yen was mostly because of increasing global tensions. On the daily chart below, the price is along the lower line of the Bollinger Bands. The RSI has dropped below the oversold level of 30 while the ADX3 indicator has risen above 36. While the pair could continue moving lower, there is a likelihood of a pullback happening. If it does, the pair will likely test the important level of 106.40.
The EUR/USD pair was relatively unchanged after the weak economic data from Germany and the relatively strong data from the US. As of writing, the pair is trading at 1.1216, which is slightly lower than the upper line of the Bollinger Bands. The RSI has moved slightly higher and is currently trading at the 60 level. The ADX has also started to move higher. As the US CPI data and the weak economic data did not move the pair a lot, there is a likelihood that the pair could continue along the current channel.