European markets are trading modestly lower as investors feel anxious about the GDP contraction of the biggest economy of the eurozone, Germany. The fact that German GDP data came bang in line with the forecast has made the risk of a severe recession risk less significant- at least for now. Obviously, the last thing that investors wanted to see today was a huge miss on German GDP number. The data came in at -0.1 percent which was the same as the previous reading.
Another reason that we are seeing some optimism in the market today is also on the back of the G 7 meeting which pretty much ended on a positive note -some optimism on a trade deal between the US and China. Although you can call this as one of Trump’s tactic, mostly, he ends his speech (or conclude important events) by leaving such false hopes for the market participants.
For me, there was nothing positive from the recent G7 summit and Trump’s speech was once again miss leading the markets. The fact is that both sides are really far apart from what they want to achieve and more importantly, the terms on which they want a deal. President Trump is still undermining the strength of the Chinese politicians and he is wrong in thinking that China will cave in.
The fact is that in the absence of a trade deal, the economic data will continue to deteriorate, global growth will slow, manufacturing data will continue to become worse and central banks will have no option but to support the markets with whatever they have.
The Fed is already under immense pressure to keep cutting the interest rates. Trump has also already shown his preference with respect to interest rates: he wants the Fed to cut the interest rate by another 100 basis points. Sound ridiculous given the strength of the U.S. economy.
Gold is the only trade for investors who wants to play safe and this is the reason that the precious metal broke the our target level of 1550 yesterday which we mentioned several times previously.
Having said this, the president has mentioned that he is in no rush in raising taxes on automobile industry in Japan. Clearly, this is a step in the right direction. In addition to this, there is also a possibility of a meeting between president Trump and president Rouhani and this simply equates to less geopolitical tensions. But the fact is that Trump changes his position rapidly. Thus, trading on the back of the hopes that he may actually show his good side to Iran could be a bad idea. He may actually change his position or his terms and conditions on which he wants to meet Iran (when he returns to the US). Under those circumstances, things may just move to where they were before.
