Pelosi’s Taiwan trip weighs on sentiment
A mixture of worries about the health of the global economy and rising tensions between the US and China are weighing on stocks. In the past 48 hours, we have seen downbeat manufacturing data from China, Europe, and the US so that has reignited fears the world economy is slowing. Last month, the IMF lowered is growth outlook for the largest economies in the world, in addition to that, the body said the possibility of a global recession increased. Politics is playing a role in the sell off too as Nancy Pelosi, US House Speaker, touched down in Taiwan. The purpose of the visit is for the US to show its support for Taiwan, and this is something that has ruffled a few feathers in the Chinese government. The move by the Biden administration makes things a little more complicated in regards to its economic relationship with China. It is worth nothing that US equities have enjoyed a bullish run recently, so this mild bout of selling started from a high point. The Dow Jones is down 0.5%, but keep in mind it hit a two-month high yesterday.
The US dollar up 0.5% following five consecutive days of losses. It appears that short covering and bargain hunting are propping up the US dollar. Even though the Fed carried out a dovish hike last month, the bank it still on track for further rates hikes, so perhaps the recent decline in the greenback was overdone.
The Reserve Bank of Australia lifted interest rates by 0.5%, in line with forecasts, but the bank also warned about lower growth, and that caught traders’ attention. The mildly downbeat outlook speaks to the possibility the RBA might ease up their hiking policy. Last week, the Fed suggested they were thinking about carrying out smaller rate hikes down the line, and it sounds like the RBA could be heading in the same direction. AUD/USD has lost 1.5%.
Gold is a touch higher as the flight-to-quality play is helping the metal. It says a lot about traders’ appetite for gold that it can rally even on a day when the greenback jumps. Brent crude has swung into positive territory even though it was lower for most of the session. Traders are mindful of tomorrow’s OPEC+ meeting as there is chatter the group might discuss a possible lift in output from September.