Trade tensions keep markets on edge, US PPI in focus

Suspense was in the air today as investors kept a close eye on the latest global trade developments.

Asian stocks dipped to a 14-month low during early trading while European shares were mildly higher following a fresh round of verbal threats between Washington and Beijing. China is seeking permission from the World Trade Organisationto slap sanctions on the United States next week for non-compliance with a ruling regarding U.S. dumping duties. This development comes at a time whenWashington is due to announce a decision on whether to impose tariffs on $200 billion worth of Chinese goods.

Market sentiment may be dealt a serious blow if the Trump administration moves ahead with imposing tariffs on China, especially after Beijing has vowed to retaliate. With a full-scale trade war between the world’s two largest economies seen as a significant threat to global growth and stability, there are no winners.

The turmoil sweeping across emerging markets could be here to stay due to a combination of key market themes. Prior to the brutal EM currency selloff, escalating global trade tensions already weighed heavily on emerging markets while a broadly stronger Dollar compounded downside pressures. With mounting expectations of higher U.S. interest rates seen as another nail in the coffin, EM currencies could remain depressed for a prolonged period.

In the currency markets, the Dollar was on standby against a basket of major currencies ahead of the U.S. PPI report scheduled for release this afternoon. Markets expect to see producer prices having slowed in August, with the headline year-on-year rate cooling from 3.3% to 3.2%. With the Dollar heavily supported by rate-hike speculation and safe-haven demand, the outlook remains fundamentally bullish. Technical traders will continue to closely observe how prices behave above the 95.00 level. A breakdown below this level could encourage intra-day bears to target 94.80 in the near term.

Gold’s depreciation has been based ona broadly stronger Dollar and prospects of higher US interest rates.

The chaos across emerging markets could impact the metal’s trajectory in the coming weeks. It is worth notingthat emerging markets remain the biggest consumers of physical gold, and with their currencies sharply depreciating, their purchasing power decreases. A fall in purchasing power among EM consumers is likely to compound the yellow metal’s woes.

Focusing on the technical perspective of gold, intra-day bears need to breach the $1,191 level to open the gates towards $1,180.