Markets, Gold, Oil

Markets back in the red as tariffs increased

European markets are mostly lower at the start of the week and the US is expected to open even deeper in the red after talks between the US and China broke down and tariffs were increased.

The talks appeared to be going quite smoothly until a week ago when the cracks started to appear, since when markets have given up a chunk of their first quarter gains. There is still some hope that a deal can be reached, with a possible meeting at next month’s G20 being touted between Trump and Xi in an attempt to break the impasse.

It will now be interesting to see just how much conviction there is in the first quarter rebound, with the prospect of a Sino-US deal a big contributor to the improved sentiment in the markets. Of course, there were other important factors as well and central banks have made a significant effort to alleviate those concerns but trade tariffs are a major concern at a time when global growth is already expected to slow.

Gold failing to capitalize on risk averse markets

It’s interesting to see that gold is struggling to break back above $1,290 at the start of the week, despite the risk aversion we’re seeing in the markets and the softer dollar. Gold is a traditional safe haven and often performs well when the greenback is weaker. The fact that it’s struggling to make any real strides to the upside may be a real concern for gold bulls and suggest the downtrend since the middle of February may not have passed.

The important level to the downside remains $1,265, where gold has run into support on a couple of occasions over the last month. It’s not yet clear that we’ll see a test of this in the near term, with gold continuing to hold around the recent highs but the inability to capitalize on otherwise risk averse markets and a softer dollar is not an encouraging signal.

Oil rises as tensions flare in the Gulf

Oil prices are more than 1% higher on Monday, getting the week off to a positive start even as risk aversion drags equity markets lower. The risks to global growth of a trade war between the US and China would typically have been a bearish development for oil prices but reports of vessel sabotage in the Gulf appears to be supporting prices.

The increase in tensions in the region as the US proceeds with efforts to reduce Iranian exports to zero and crush the economy is a risk for oil markets and could see prices rise further if these flare ups continue. As it is, we remain a little off the recent highs and today’s gains are likely being limited by the overall risk environment but that could all change very quickly.