Gold’s rally is invincible now, always buy gold at dip.
Trade tensions: slowing economy looks persistent
The trade war just ratcheted up another notch and the outlook for Chinese manufacturing deteriorated further, signalling that caution that characterised a tumultuous August for global markets may have more room to run.
US implemented 15% tariffs on about USD$110 billion in apparel, footwear and other Chinese imports on Sunday. This is despite face-to-face talks between American and Chinese trade negotiators scheduled to take place in Washington this month still being on track. Chinese exports of shoes and clothing to the US could drop by more than 3% year-on-year in the second half of this year as a result of the tariffs.
Data on Saturday showed the manufacturing sector of the world’s second-largest economy remains under pressure. China’s purchasing managers’ index (PMI) dropped to 49.5, marking the fourth consecutive month of contraction in factory output. The latest tariffs that came into effect on Sunday were widely anticipated and may already be reflected in market prices.
The new duties will hit Apple products that made up at least 10% of sales in the company’s 2018 fiscal year, such as the Apple Watch, Air Pods and iMac computers. Shares of Foxconn Technology Group, the US company’s main assembly partner, and Luxshare Precision Industry Co., which provides components for wearable devices like the Apple Watch, could be volatile in Monday trading.
Gold is the best safe-haven now
A more than 7% surge for gold in August may have further to go after ending last month at about $1,520 an ounce. It’s not just the tariffs but the Hong Kong unrest that could lead to renewed buying interest in gold. Gold could hit $1,600 over the next two months, bolstered by trade woes and further interest rate cuts by the Federal Reserve.
Apparel and footwear manufacturers that earn revenue from Chinese exports to the US are in the line of fire. Hong Kong-listed Yue Yuen Industrial Holdings Ltd., for one, makes about 13% of its shoes in China and is one of the largest shoemakers for Nike and Adidas globally.
AUD/USD – Slightly bearish
This pair may drop towards 0.6690 this week as risk sentiment slumps.
USD/JPY – Slightly bearish
This pair may drop towards 104.80 amid poor risk sentiment.
XAU/USD (Gold) – Slightly bullish.
We expect price to rise towards 1560 this week.
U30USD (Dow) – Slightly bearish.
Index may fall towards 25255 this week.
Fullerton Markets Research Team
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